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Profit Booking

I have invested in Franklin India Bluechip at different levels. I plan to book some profits & rebalance my portfolio. Please tell me which units will be redeemed.-Deepti Mukherjee

I invested in Franklin India Bluechip Fund(dividend option) at different levels. Now that the NAV has risen, I plan to book some profits and rebalance my portfolio. But I can't figure out which of the units will be redeemed. Will it be earlier investments or the later ones? How will I figure out the value of my investments after partial redemption?
-Deepti Mukherjee

Your query reveals that booking profits is not an easy exercise at times. From the investment details you have supplied, you own a total of 3,763 units of Franklin India Bluechip Fund. We gather that you wish to redeem profits of Rs 1,23,135 from the current valuation of Rs 1,63,635.

As a first step, you can redeem units by filling in a redemption request for the sum of Rs 1,23,135 and the fund would deduct the necessary number of units. But as an informed investor it is always good to be in command of one's investments. So here goes.

Investments and redemptions in mutual funds follow a principle called first-in first-out (FIFO). This means that the investments made first will be the first to be redeemed and so on. In order to book profits of Rs 1,23,135, you will have to redeem a certain number of units. At an NAV of Rs 43.48 per unit, you will have to redeem 2,832 units. On the basis of the FIFO principle, the first batch of units to be redeemed will be those purchased first and then the next batch and so forth and so on. Hence units purchased on February 8 (412.201), September 12 (90.09), September 19 (465.983) and October 1 (717.017) will be the first to go. The only purchase that will be partially diluted is the 1,150 units purchased on October 4, 2002. Of this you will end up retaining only 3.82 units.

As for the status of your remaining investments, the balance units will be maintained with the fund house until you wish to redeem them. And these units will be the most recently purchased ones totaling 931.46 units i.e. 3.82 units from October 4 and 927.644 from the purchase made on October 18.


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