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I've earned significant returns on my equity investments over the past three years. Should I now move the proceeds to a liquid fund and book profits? - Anonymous
Whether you should switch your equity investments to a liquid fund depends on when you need the money. If you need it in the near future, that is, within the next 6-12 months, it may be prudent to withdraw from the equity fund, book some profits and move the money to a liquid fund.
The only other two circumstances in which you should exit from an equity fund are as below:
- If you've achieved or are very close to achieving one of your financial goals
- If the equity fund you invested in has been consistently underperforming its peers and category for at least three years. Don't look at a fund's one or two-year performance, as short-term returns can be misleading.
However, if you don't require the funds for at least five years, it may be best to stay invested in an equity fund. This is because liquidating your investment right now can hamper long-term wealth creation.
Furthermore, since predicting market movements accurately is challenging, it's wise to keep your money invested in equities, regardless of the prevailing market conditions.
Instead, focus on creating an asset allocation plan that regularly helps you rebalance your investments. That's the only methodical way to book profits.
Also read: Should you invest surplus income in liquid funds?
This article was originally published on September 11, 2024.
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