Should I book profits in mutual funds? Will it not impact compounding in the long run?
- Subramanian
If your funds have fared well and you have gained from the investments, it indicates good fund selection. However, it does not mean because your fund investments have grown for you to book profits in them. You need to ask yourself what to do with the profits? If you are thinking of investing it again; you need to ask yourself why you had made the investments in the first place funds that you booked profits in.
And, you are right, if you book profits, it will impact the corpus and compounding. Which is why, you should invest with a financial goal; once the goal is achieved the accumulated funds are used to meet the goal. If your decision to book profits is to re-invest, you may land up investing in the same funds that you booked profits in. There is a lesson from this experience for you; invest with a goal and book profits only when there is a new compelling idea in which you wish to invest the gains.
This article was originally published on June 14, 2011.
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