Why you should not book profits right away?

Why you should not book profits right away

From Qunantum Mutual Fund

As the stock markets are on a roll, many investors are wondering how long it will continue this way. Will the markets continue to achieve new highs or will they see a drop?

While markets indices may continue with their flows, as a long-term investor you should not worry about day-to-day market levels at all.

Stay invested to fulfil your goals

A very simple and clear advice is to remain invested till the time your financial goal is achieved. Always remember that the decision of redemption should be connected to your investment objectives and not to market levels.

As a mutual fund investor, it is best not to worry about the market levels. 

Analysing market trends and investing your money is the fund manager’s job. When markets are at their peak, the need to redeem should not cross your mind.

Fund managers are supposed to understand market trends better, sell the overvalued stocks and then deploy money as and when markets offer investment opportunities.

Your fund manager may have booked profits on investment and is now waiting for the next suitable opportunity for further investment. Therefore it is probably better to hold for a while before taking the next step.

Fund managers spend most of their time in research, meeting with company promoters to understand their strategy and business plans which could have an impact on the performance of stocks or markets.

In short, your fund managers are potentially in a much better position to understand markets trends.

Reinvest your redeemed money

There is also a possibility that you may not be able to reinvest your redeemed money and may lose out on opportunity which does not happen if you let the fund manager manage your money.

However, the bigger question is will you be able to be catch a good investment opportunity in the current market especially when interest rates on savings and fixed deposits are falling?

Therefore our advice is to continue your investments with this profit until the time you have achieved your financial goal. Redeem only if you have achieved your investment goal! You have two reasons for redemption.

Either you are worried about the markets levels (markets are at all-time high so may fall down and so it may be better to book some profit) or you have met your financial goal and your investment objective.

If you are seeking to redeem for the first reason for you, then as we have explained earlier it is better to allow the fund manager to do that job.

If you reason to book profits is the second case, that is, you have achieved your financial goal then you can redeem now. You can spend your profitable investment to fulfil your financial goal like higher education of children, marriage, etc.

One of the best ways to redeem your investment is by starting a Systematic Withdrawal Plan (SWP). By doing this you will minimise the risk of redeeming all your money on one day. To conclude, if you have achieved your investment objective then you can set a new financial goal and start your next long-term investment association with markets.

If you have not achieved your financial goal then you should continue with your investments till the time you have achieved your investment objective.

Always remain a long-term investor to make the most of your investment.

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