Should I book profit every time when market is at peak?

POSTED BY vijay ghadge ON December 23, 2013 6:25 pm COMMENTS (3)

Dear Sir,

I want to know about the mutual fund strategy.

1. If my view is long term and I kept my sip investment till 20 years instead of booking profits at regular interval when market is at peak,but due to cyclic nature of market ,my investment plus profit remains average or less in the end when market is at bottom.

Now my question is:

1.Will i get the power of compounding? How?

2.Should i watch and book profit every time when market is at peak?

3.Your best strategy?

3 replies on this article “Should I book profit every time when market is at peak?”

  1. ashalanshu says:

    Dear Vijay, if you have started just now, please do not worry about 20Y down the line. There ‘ll be many ups and downs in between and no preplanning ‘ll help in such scenarios.

    thanks

    Ashal

  2. Paresh Shetiya says:

    It is impossible to know when market is at the peak, so timing the market should be avoided.

    Assuming you are investing in equity funds, though expected returns can be anything between 10% to 16% or more after 20 years, there is a very rare possibility of market remaining average or low after that period.

    Though there is no best strategy, a good strategy would be as follows:

    1. Fix a nominal rate of return on the lower side (say 10%) which you are comfortable with.
    2. Continue with the SIPs for at least 4-5 years, as that is the minimum period of time when equity can show meaningful returns. Ignore superlative or negative returns in the short term.
    3. After 4-5 years, as and when the annualised return from your investments reach your target rate, withdraw the amount and invest the proceeds in a debt product, thereby locking your gains. (However, there is a possibility you may not reach your target rate even in 7-8 years, in which case you may need to relook at your SIP chosen).
    4. Continue with the original SIP till the end of your target period (2o years), following the same strategy as above every 4-5 years.

    Thanks,

    Paresh Shetiya

  3. Salva says:

    Hi Vijay,

    How can you know when the market is at its peak? Example, the indexes (Sensex and Nifty) may move up 2% in a day, does that mean it won’t go up further?

    Personally, I have timed the market thrice, twice correctly and once wrongly. Then I decided it was not worth the effort and just invest in mutual funds via SIPs and three-four stocks when they go below a threshold. I do these investments with a long term view of 10 years (stocks) and 15-20 years (mutual funds).

    This is just my personal opinion. Others might have a different opinion.

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