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Should one move the profit of small and mid-cap funds to debt mutual funds?

Dhirendra Kumar explains if moving the gains to debt funds is a wise idea

Would you suggest moving the profit component to a debt fund and leaving the capital in equity funds? I am asking this specifically from the perspective of small- and mid-cap funds?
- Mothi Rajendran

Firstly, I would like to say that a conservative investor should not invest in small and mid-cap funds. If you invested in a small and mid-cap fund and have made handsome gains that you now want to lock in, moving the gains to a fixed income fund will not get you any kind of insurance. That's because while you can take the gains out, the capital left in small caps can still fall dramatically in case the markets correct.

Work on your total asset allocation, i.e., money invested across equity funds, and then maybe move a third of it in fixed income. This will be more relevant.

The gain component could be different for different people depending on their age of investment. For instance, I have some investments which are 15-20 years old, now my capital as a proportion of the investment value is just about 10 per cent, and 90 per cent is the gain.

If you invested a month or a year ago, and that fund has gone up by 50 per cent, only a third of your money is the gain. But if you invested five years ago, then possibly your gains would be about 75 per cent. So, the scale of gain can be different.
Now, if you are terrified of the market and will be very upset if the market comes down dramatically, work on your asset allocation and do something about it in totality rather than moving the gain only from some of the funds.

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