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Should I move from equity to a liquid fund to book profit?

Dhirendra Kumar explains when should you switch or book profits from equities

I have earned a return of almost 100 per cent on my equity investment over the last three years. Should I now shift to a liquid fund?
- Sharique Ahmad Khan Niazi

Congratulations, because investments going up by 100 per cent in three years is a great thing. And this has come at a time when nobody expected it. But the fact is I don't know if you should be doing that.

If you don't have enough time, i.e., if you are not going to remain invested for at least another five years, you should take a part of the money out, which you are likely to need in the next two to three years. If it is a long-term investment that you are unlikely to need in the next 5-10 years, remain invested because nobody can guess what will happen in predicting the markets, and most of us have been wrong in the last two to three years in doing so.

There are two reasons when an investor should take his money out. You can do it if you have achieved your goal after investing for the period you have done, which may range anywhere from two to 10 years or more. If it has accumulated to the level you wanted it to, you can redeem and use it to buy that car or home or whatever you had invested it for. If that goal has been achieved earlier than expected, take that money out and use it for your consumption.

Secondly, if you choose a fund thinking it would perform in a certain way, but after investing, it stops performing as per your expectations, or if other alternatives suit your need and are performing well as per your expectations, you make a switch. Another reason to switch can be if it has slipped on the ratings dramatically or is no longer a part of the Analysts' Choice section on VR Premium due to compelling reasons. Only in such cases you may move money out and invest it in some other fund, but here you are not entirely pulling out but just making a change in the fund.

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