When to Exit From Mutual Funds or Stop SIP | Profit booking in Mutual Funds | ETMONEY

Most of the videos on YouTube do a great job of answering the question:

when

should I start investing? and the typical answers are: start as soon as possible, start investing early, take a long-term view, start with sips, etc., but one question that is not addressed enough is

when

is the right time to

exit

the investment is a question that comes up often especially when there is a correction in the market or when the markets have really skyrocketed, so in this video we look at four specific scenarios in which one can explore the

exit

from their investments and More importantly How can you develop an exit plan?

Let me start with a true story. The story dates back to 1929, when Joe Kennedy, the father of US President John F. Kennedy, ran his Wall Street investment firm. One day when Kennedy Sr. was shining his shoes the boy shining his shoes began to give him advice on stocks it was at that moment Kennedy realized that the bull market in the United States had reached levels of irrational hysteria and once he returned to the Kennedy's office began the process of pulling out of the stock markets and when the crash of 1929 and the Great Depression hit, he had liquidated most of his positions and was probably one of the few winners of that period.

I tell you the story because it illustrates the importance of recognizing high levels. of obvious hype by people who recklessly jump into the stock markets and invest in instruments they don't really understand, the signs of such market euphoria are everywhere, especially if one starts looking for them, for example when you see more growth stories than proof of

profit

s when we see companies or even analysts left without explanations as to why their stocks are rising so much when we see the rise of penny stocks when IPOs are hugely oversubscribed increase in loans of margin excessive valuations decline in credit quality and many other signs from an investor's point of view It is not a bad idea to set up a

profit

reserve and take home some of the exceptional profits you have made in the stock markets.

There are now many distributors, especially those who suggest sips, who may not like the sound of profit

booking

and we don't. I understand why, but in our opinion, take a page out of the sipping book, just like a sip helps average out your purchases. Profit

booking

helps average your withdrawals. Let me tell you that again sips help average your purchases while profit booking helps average your withdrawals. Now yes. There is always a chance and there will probably always be cases where you will lose some money due to missed opportunities, but if profit booking where the odds are in your favor helps you sleep better at night, why not do it? when necessary?

When it comes to creating an exit plan for profit booking, you can be clear on two things: firstly, at what point you would like to play it safe and book profits, for example in a hedge fund video. small cap that we feature on the 80 money YouTube channel we created. a case for booking profits only when the relative valuation of small and largecap companies crosses 1.1x, so it is a scientific and proven way to determine at what time it is good for you to book profits, the second point is necessary What we know here is that booking profits is only part of the puzzle and you still have to determine how to use the profits and where to reinvest them.

A suggestion here would be for investors to switch to a different asset class which may be a suitable option. Protecting yourself against a long stock market – This is where assets like gold or a short duration debt fund or even a simple fixed deposit will become a suitable mix which will then have the real advantage of realigning your asset allocation. We all invest our savings as it helps us achieve this. Certain financial goals we have created for ourselves. These can be short-term goals, such as paying rent or paying for a vacation, or longer-term goals, such as purchasing a car, a house, or even retirement.

A good reason to accept an investment or

stop

taking a sip. be the completion or achievement of your financial goal, in fact, for long-term goals, the exit plan begins even before you reach the point where you have completed the intended goal; In other words, a transfer plan receives an exit plan for long-term goals where you need to start moving money from riskier asset classes to safer asset classes before reaching your goal. Let's understand this with an example. Let's say you want to buy a house and over the years you have accumulated about 85 percent of the value of the apartment now in the stock markets.

It can take big swings and is very much like a game of snakes and ladders, you don't want to slide from an achievement of 85 to an achievement of 60 due to a sudden drop of 30 in the stock and for this reason it is recommended to start the process. From moving a large part of this 85 into relatively safer instruments, such as a short duration debt fund or a bad fixed deposit, which will protect the gains much better than an equity instrument, now financial exit plans based on Objectives offer some flexibility. for some types of goals, so you will do well to keep this in mind and manage accordingly, for example, if the goal is retirement and the return on your assets suddenly drops, then you have the option of extending your retirement by two or three years more and, hopefully, by then your retirement

funds

would have gained traction;

However, if this money was needed to pay for something more urgent like your child's university tuition abroad, then you would need to be a little more careful and combine the risk of achieving the goal with the assets in which they are invested, so There is some thinking to be done regarding the transfer plan, asset risk and backup plan, but once you have chosen your financial goal, you can peacefully consider exiting some of the allied investments, asset allocation and Subsequent rebalancing are key elements in any investment plan. The process ensures that you stay within your acceptable limits of risk tolerance by ensuring that you exit overvalued asset classes and move into those that are undervalued.

A standard portfolio mix proposed by many financial planners is the 60 40 mix. With 60 going to stocks and 40 going to bonds, now let's assume that stocks did well last year and grew 30 percent, while bonds had a relatively tiring growth of only five percent. In this case, your new stock bond ratio will be 78 to 42, which on a base of 100 would mean a ratio of 65.25, meaning that to divide the portfolio back into 6040, one will have to sell a portion of five percent equity and simultaneously five percent in debt. This is basically what rebalancing is and in our scenario it requires getting out of some of your debt portions and purchasing some of your equity to maintain balance.

A good exit plan here would require you to be ready with which chunks of capital i.e. which

mutual

funds

or which stocks one will exit from. This is quite important because investors follow an asset allocation within the capital itself and are careful about the amount of liquidity assets found in large cap, mid and small cap companies. For example, currently the total users of et money are around 60 to 65 in large cap companies, around 22 in mid cap companies and the rest 13 to 14 in small cap companies, if you are not sure about How your equity assets are shaping up, don't forget to upload your portfolio to the ET Money app and take a closer look at your aggregate portfolio when it comes to rebalancing.

It is also important to follow a scheduling criterion, for example, one may choose to rebalance the investment portfolio at a periodic interval such as 6 months or 12 months, but then one may also consider setting certain triggers, such as a variation of 7 or 10 , which would then initiate a rebalance. Remember that a solid asset rebalancing strategy is one of the most essential things you should do to build a solid portfolio and exiting some of your investments to maintain that balance is always welcome. The final scenario that can be considered is to exit your

mutual

funds or cancel your Sips have to do with the schemes themselves, a very obvious one is in case of schemes that are not performing well consistently for many quarters;

In such a case, exiting that fund and moving to a more consistent scheme is a natural option, in fact, if you remember our video on best mutual funds in India, we have identified 11 schemes there that have never been among the top 25 best. performance in any of the previous 10 years, so yes, these funds were consistently respected and it made a lot of sense to exit them and replace them with something. a more consistent and better performing fund another reason for exiting a scheme can be a change in the fundamental attributes of the scheme, for example, in 2018, the semi introduced a scheme categorization circular that required a number of funds to make changes totals in the investment structure of the scheme. style and portfolio, these were material changes to the attributes of the scheme that may alter the carefully designed asset allocation of our investors.

That said, such scenarios make a strong argument for exiting existing mutual funds that don't serve your purpose and when you plan to exit one. You need to consider the impact of exit loading and taxes when redeeming your units and with this we come to the end of this video. I hope this video has given you some perspective on when you should consider exiting your mutual fund investments and sips, if you wish. this presentation, subscribe to the et money YouTube channel and help us spread the good word by sharing this video via WhatsApp and Facebook with your friends and contacts.

Thank you for your time and we hope to contact you next week with other interesting information. video until then investments in mutual funds are subject to market risks carefully read all documents related to the plan