Mutual Fund Portfolio: When should I book profit and reinvest?

my husband’s salary 1.2 lakh per month and my monthly salary is 80,000. we have about 50 lakhs in mutual funds and I have started a new monthly SIP 20,000 in equity mutual funds. Equity markets have recovered sharply over the past few months and are likely to continue in the near future. Though we are not required to invest money in mutual funds, should I redeem a portion of my existing equity MF portfolio to book some profit or top it up to avail lower NAV?

– Name withheld on request

(Question answered by Naveen Kukreja – CEO & Co-Founder,

I would advise you against timing your investment and redemption decisions based on market directions. As it is extremely difficult to predict the highs and lows of equity markets, cashing out equity mutual funds or stopping SIPs during bearish market phases can incur a high opportunity cost to you. Instead, your redemption decisions should always be based on the maturity of your financial goals, changes in your risk appetite and/or continued poor performance of the funds you have already invested.

Remember that bullish market correction and bearish market phase equity funds allow SIP investors to acquire quality equities at attractive valuations and as such, their purchase costs average out at very low NAVs. Thus, stay invested in your existing equity funds and continue with your SIPs as long as they suit your risk appetite and financial goals.

However, you should review the performance of your existing mutual funds. Redeem funds that have consistently underperformed their benchmark index and peer funds. If any of your existing funds is underperforming, consider HDFC Index Sensex Fund, Mirae Asset Large Cap Fund, Axis Bluechip’s Direct Plan; Parag Parikh Flexi Cap Fund, PGIM India Flexi Cap Fund; Kotak Emerging Equity Fund, PGIM India Midcap Opportunities Fund; Kotak Small Cap Fund, Axis Small Cap Fund, as the replacement fund for their respective fund categories. In case of tax saving funds, you can consider the direct plans of Mirae Asset Tax Saver Fund and Axis Long Term Equity Fund.

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