I am 30 and want to invest Rs 3 lakh in three different schemes through SIPs over 12 months. I believe that given the uncertainty and risk in markets, profit booking in the form of dividends (pay-out) is a good strategy, rather than relying on the judgment of timing the market. What should be my approach?
-Kiran
Dividend from an equity fund is like getting part of your money at the fund's desire while your incremental investment will incur a load as you reinvest it in another fund.
Periodic profit booking is a sound strategy to mitigate the risk in equities. You should approach this by following a disciplined rebalancing strategy. For example, have a 10 per cent allocation to a bond fund so that your equity:debt allocation is 90:10. Since your equity exposure could increase as the worth of your investments rise, reset this allocation a year later. Later you can reset it either every quarter or every time it is substantially off your stated allocation.
This article was originally published on October 26, 2007.
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