How to book profit in mutual fund: Mutual funds are generally invested depending on an investor’s goals. These may range from retirement, children expenses, marriage, etc. But how does an investor know when it is the right time to sell his funds or move to better funds to meet these goals. 

In addition to this investments in mutual funds are subject to market risks. Therefore, it is of utmost importance to know when one should liquidate these holdings. These investments are quite risky and a range of economic factors can impact the returns. This article will shed light on when and how to book profits in a mutual fund. Read on!

How to Book Profit in Mutual Fund is a one-stop book on the topic of bookkeeping in mutual funds. The book covers various aspects of bookkeeping including opening and closing accounts, record keeping, portfolio securities, and other details related to the field.

Also Read: How to Convert Regular Mutual Fund To Direct? It’s Simple!

When to book a profit from Mutual Funds? 

The best time for booking profit in a mutual fund portfolio is when an investor thinks he has enough funds to meet a financial goal. This is the basic criterion when one may decide to invest in a mutual fund.

But investors must keep in mind that they cannot afford to be greedy in these situations because their wealth is tied to a goal. Profits can come down in a blink of an eye, and this can push an investor’s goal further away. 

While certain instances may be where investors can consider selling their mutual fund holdings. One such scenario can be the rebalancing of the mutual fund portfolio. For example, you have a mutual fund portfolio that is 60% into debt funds and 40% into equity funds. Now, you want to increase your exposure to equity.

Therefore, you can sell some of your debt holdings and bring that amount into equity. There can be multiple reasons for doing this. You might expect equity markets to rally in the near future or you know that economy is expected to flourish which should have a positive impact on the equity market.

How to book profit in mutual fund equity mutual funds are preferred by investors having higher risk appetites. On the other hand, investors can also sell some of their equity holdings and can bring that capital into debt. For example, you might be nearer to your retirement and cannot afford too much risk.

Therefore, it will be wise to rebalance your portfolio and make it debt-oriented. Debt mutual funds carry lower risk in comparison to equity funds.

When the market changes, the allocation of 60% debt and 40% equity can change too. If during the periodic review you saw that equity has increased significantly more than what was required, that can be an opportunity to book profits.

You can also bring allocation back to the previous one. This way balance between risk and return in your portfolio is maintained.

Another reason can be emergencies and when this investment is your last resort. Medical emergencies or any other emergency can occur anytime and you might not be prepared with the required funds. This is when you can consider selling your mutual funds as they have the benefit of higher liquidity.

There can be several other reasons for booking profits in mutual funds. For example, the scheme in which you have invested has changed its mandate or investment objective. The new objective does not help you meet your financial target.

Therefore, you might consider selling your holdings and transferring the capital to some other mutual fund company.

How and What to look for before investing in a mutual fund?

Some investors decide to sell their holdings if the scheme in which they have invested underperforms its peers. In such a scenario, investors might consider allocating their capital to the schemes which are performing as per the expectations.

Having and executing an exit plan helps you to plan your investments and it saves you from the trap of getting greedy. Setting an exit plan and then following it can ensure sound returns in the mutual funds. Therefore, now we will quickly look at how you can book profits in a mutual fund.

1. Getting in touch with your Financial Advisor or AMC

You can contact the mutual fund adviser who earlier sold you the fund. If it was a direct plan, you can directly go to the mutual fund company. If you plan to sell the mutual funds through the mutual fund distributor, you can submit the duly signed redemption form to the distributor. The distributor can then submit the form to the AMC office or at the RTA office.

2. Be informed about any Fees or Charges

Before selling the mutual fund, you have to check if there are any fees or charges related to it. Some mutual fund advisers levy this additional fee. This is for compensating the broker or salesman for effecting the transaction.

Some mutual funds charge an exit load if the investment amount is withdrawn before a certain time limit. Therefore, you need to make sure that the required time gets lapsed otherwise your redeemed amount will get reduced. 

3. Decide the Units you want to Sell 

The price (NAV) of most mutual funds gets calculated at the close of each business day. Therefore, you need to decide how many units are required to be sold. If you want to sell all the units, you will be asked to sign a form. 

4. Trading or Demat Account 

If you have bought mutual funds through demat or trading account, the redemption process should also be done from the same account. Once the redemption process gets completed, the amount will be reflected in the bank account which is registered in the scheme folio.

This will be through electronic payout. Apart from this, you can redeem the units online by visiting the website of the mutual fund company. 

Therefore, above are some of the easy and convenient steps which explain how to book profit in mutual fund.  

In Closing

Forecasting a correction or an uptrend is practically impossible. For all you know, the market might continue moving upwards and keeps on setting new highs. On the other hand, it might see a correction that can impact investors’ money.

Unfortunately, no one knows the direction of the market. There are certain factors that are beyond our control and can impact the equity markets drastically.  

Therefore, it is always advisable not to alter long-term investments due to short-term market expectations. That’s it from the piece on when and how to book profit in mutual fund. Happy investing|

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