We have heard Financial Experts often reiterating the fact that Mutual Fund Investment Portfolio's need to be reviewed regularly. It is critical to regularly review the portfolio and shift from non performing schemes to performing ones.
At the same time it is also essential to book profits wherever possible. Profit booking I believe does not lead to speculation rather it is an essential element of making money through investments.
Agreed that every investment is goal oriented and has a timeline attached to it. Also for every investment to match its goal a certain rate of return is taken into consideration basis the past performance and current economic scenario.
In between the investment horizon during portfolio review in case the ongoing returns on the investments are exceeding the planned rate of returns I advise that a profit booking may be done and reinvested into a safer scheme.
E.g.
1.) During sudden fall on interest rates returns through income funds jack up and provide a good opportunity for investors to book profits.
2.) For investors having investments in Equity Funds bull phases leading to so called peaks (although nobody can determine the real peaks and bottoms of markets) provide an ideal opportunity for profit booking.
Investors having SIP's during such scenarios may continue their SIP's after booking profits.
Only caution is that profit booking also involves some reinvestment risk :
E.g.
1.) If interest rates fall further after booking profits from Income Funds.
2.) If Market rises further after booking profits from Equity Funds.
However given the nature of Investment in MF's I believe this should not be considered as some volatility is bound to be present which nobody can predict accurately.
Please Note
1.) To avoid misinterpretation of my views let me tell you that Profit booking should not be a daily or monthly phenomenon.
2.) Also the idea of profit booking is not to temper with the goals. Money earned through profit booking may be reinvested for the same goal in an appropriate scheme.
3.) It may be considered during portfolio reviews once or twice a year or during specific market levels in the prevailing economic scenario. Savvy Investors might gauge it but for others Financial Advisors may do the needful on advisory and execution.
(Views are Personal)
At the same time it is also essential to book profits wherever possible. Profit booking I believe does not lead to speculation rather it is an essential element of making money through investments.
Agreed that every investment is goal oriented and has a timeline attached to it. Also for every investment to match its goal a certain rate of return is taken into consideration basis the past performance and current economic scenario.
In between the investment horizon during portfolio review in case the ongoing returns on the investments are exceeding the planned rate of returns I advise that a profit booking may be done and reinvested into a safer scheme.
E.g.
1.) During sudden fall on interest rates returns through income funds jack up and provide a good opportunity for investors to book profits.
2.) For investors having investments in Equity Funds bull phases leading to so called peaks (although nobody can determine the real peaks and bottoms of markets) provide an ideal opportunity for profit booking.
Investors having SIP's during such scenarios may continue their SIP's after booking profits.
Only caution is that profit booking also involves some reinvestment risk :
E.g.
1.) If interest rates fall further after booking profits from Income Funds.
2.) If Market rises further after booking profits from Equity Funds.
However given the nature of Investment in MF's I believe this should not be considered as some volatility is bound to be present which nobody can predict accurately.
Please Note
1.) To avoid misinterpretation of my views let me tell you that Profit booking should not be a daily or monthly phenomenon.
2.) Also the idea of profit booking is not to temper with the goals. Money earned through profit booking may be reinvested for the same goal in an appropriate scheme.
3.) It may be considered during portfolio reviews once or twice a year or during specific market levels in the prevailing economic scenario. Savvy Investors might gauge it but for others Financial Advisors may do the needful on advisory and execution.
(Views are Personal)
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