Drop us a line and our mutual fund experts, Value Research, will do the needful.
I invested in the following mutual funds:
1. Reliance Growth
2. Franklin Prima
3. Magnum Emerging Business Fund
4. Franklin India Taxshield
5. HSBC Equity Fund
I held on to my investments for around two to three years.
Should I hold on to the units, invest some more or sell the units?
- Abhishek Jain
What puts an investor in a dilemma is the uncertainty as to whether the markets will fall or not. And, if they do, when it will happen.
If investors can know for sure that the stock market is going to fall and enter a bearish phase from a particular day, everyone will sell his/ her investments to the last penny and laugh all the way to the bank.
Similarly, they would buy the units or stocks a day before the stock market is set for an uphill journey.
Sadly, no one can have such foresight.
The same thing applies in your case. Nobody can tell you for sure whether this is the right time to sell your units and book profits (sell your units and make a profit).
Let's say the stock market actually falls and your decision to book profits turns out to be a wise one, you will be faced with another dilemma. You will not know when to buy fresh units.
Theory says the best time to buy is when the stock market is falling and the prices of shares tumble. Having said that, it is worth noting that it takes a lot of courage to stick your neck out in a falling market and say this is perhaps the best opportunity I can get to invest.
Time and again, it has been proved that investors shun stocks when they are available at dirt cheap prices.
Therefore, the best way out is to keep investing regularly.
While the job of timing the market should be left to the fund manager, an investor should invest depending upon his time horizon.
Money that can stay invested for the long-term, say five years or more, should go to equity funds. These are funds that invest in stocks.
Money that you want to invest for a lesser duration should go to balanced funds. These are funds that invest in both debt (fixed return instruments) and equity (stocks).
If you want to invest your money for just a few months, you should go for short-term debt funds or floating rate funds.
Short-term debt funds are also called liquid funds; they are a good alternative to savings bank accounts because they give a higher return.
Floating rate funds are mutual funds that invest in fixed return investments that have a floating interest rate as against a fixed rate of interest. So, the interest rates increase or decrease depending on how interest rates are moving in the economy.
Let's say you are getting a bit anxious about the height the market has reached. At the same time, you are confused as to whether you want to redeem your money (sell your units) right away or wait for a while.
A wise way would be to opt for the Systematic Withdrawal Plan. This allows you to sell units at a certain amount at fixed intervals of time.
Effectively, it can be called the reverse of a Systematic Investment Plan, where you buy at regular intervals.
This will ensure you do not miss out completely on the potential upside (the chance that the market may go even higher). At the same time, you don't incur heavy losses should the stock market begin to fall (because you began selling when the market was high).
Got a question for Value Research? Please write to us!
Note: Questions may be edited for brevity. Due to the tremendous response, all queries will not be answered.
Disclaimer: While efforts have been made to ensure the accuracy of the information provided in the content, rediff.com or the author shall not be held responsible for any loss caused to any person whatsoever who accesses or uses or is supplied with the content (consisting of articles and information).
More from rediff