Sip Profit Booking: The trend of investment in mutual funds has increased rapidly through a systematic investment plan (SIP). It is considered one of the best routes to make money in long term. Despite the stock market fluctuations and global changing restments, money is constantly coming through SIP in mutual funds. In such a situation, there is always an important question in front of investors, when should you book profit booking in mutual funds? Also, what is the attention of what is going to be done while booking the profit
When to book profit book in mutual funds?
Dixit Mittal, Senior Fund Manager of Equity at LIC Mutual Fund Asset Management Limited, says that profit booking in mutual funds should be completely according to your financial goals. He says, ‘Booking profits on earnings from mutual funds i.e. withdrawing money should not be done in a hurry. Seeing the boom or decline in the market, if you panic and sell funds, then there is a possibility of more loss in it.
According to Mittal, ‘Everyone does some special purpose in mutual funds. Such as buying a house, child’s education or marriage or your retirement. When enough money is deposited for your purpose, withdrawing money from mutual funds is a sensible step. Also, when the ratio of equity in your portfolio increases greatly due to the boom in the stock market, then booking a little profit should maintain the right balance in your investment. In this way you can also control your risk and keep investment safe.
What to do if the market overwalluades are found?
Some financial experts believe that if the market is overwelled, booking the profit can be a good signal. If the performance of your mutual funds is quite different from your benchmark or peer group, then it is necessary to reconsider your investment. Mutual funds are usually long-term investment. So the first portfolio review ideally after 3 years, and then should be at least once a year. If funds are needed, it is valid to book profit. Otherwise, one should remain on your investment strategy without being afraid of the fluctuations of the stock market.
According to the expert, do not withdraw all the money from the mutual fund. Instead, do the partial withdrawal with Systematic Withdrawal Plan (SWP), so that your investment is also maintained and the profit is also locked. In such a situation, you can adopt target-based strategy. Set a target of returns in advance, and when they are found, book the profit. Regular rebelling of portfolio is also necessary. With this, investment will be aligned according to your risk profile and financial goals.
How to reduce tax liability on mutual fund profit?
Tax planning should be run along with profit booking. Investment should be held Ideally for more than a year to take a benefit of Long-Term Capital Gains (LTCG) tax exemption. To reduce tax outflow further, you can sell underperforming assets and use that loss to set off the gains, which is called tax-loss harvesting. In addition, you can also consider withdrawing from tax-deficient accounts or minimum tax impact funds.
Whenever you plan to make profits, take special care of two things. First, earn maximum benefit (Gains) and second, pay at least tax. When you think of changing your mutual funds, first of all, see that there is no exit load or a fine if you withdraw money in that fund. Also, check that the profit that is coming from your equity funds should not exceed ₹ 1.25 lakh annually, because you do not have to pay tax till this limit.
If you have disadvantages of previous years (called Carrie-forward loss), it is very important to add them correctly, so that your tax can be reduced. Apart from this, the funds whose performance is weak or which you are not benefiting should also be seen from time to time. If needed, it can be beneficial to book losses in such funds, so that you can take further advantage in tax.
What are the things to keep in mind while doing SIP
Dixit Mittal of LIC says that SIP in mutual funds is a good way to increase money in a long period. Mutual funds should be a part of your financial planning and their choice should depend on how much risk you can and what are your investment goals.
- Before starting investment, decide what your goal is. Such as buying a house, children’s education, retirement. If you can take more risk, consider equity funds, otherwise date funds or hybrid funds.
- It is important to see how the fund has performed in the past. But, do not invest just by looking at old returns. Also understand market status, fund manager experience and fund strategy.
- Do not put all your money in the same fund or the same fund. Invest in different companies, sectors and asset classes (eg equity, date, gold) funds so that the risk is distributed.
- Every mutual fund charges some fee, which is called the expansion ratio. Funds with low expans ratio can be more beneficial in a long period, as it has less effect on your returns. Also understand the fees like entry load and exit load.
- With the market situation and change in your financial goals, review your investment from time to time. If necessary, change your portfolio. Those investing through SIPs should also review their investment from time to time.
ALSO READ: SIP Tax Rules: How much and how tax is on profits from mutual funds, understand complete calculation
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