When the markets are soaring, you may think of booking profits from your SIP Mutual Fund. However, whether are you sure of doing it, or whether will it be the right move or not toward your investment goal is something to consider before booking profits. So, when to book profits and how to book profits in SIPs is crucial to figure out.
What are SIPs?
SIPs stands for Systematic Investment Plan which helps you invest in mutual funds on an installment basis or periodic basis. Since everyone can't invest a lump sum amount in mutual funds, SIPs were started. With SIPs, one can invest small amounts, it can even starting from Rs. 100 a month into mutual funds. This reduces the burden on the investors regarding lump sum investments.
SIPs are also the safer way to invest in mutual funds compared to lump sum investments. The reason being the market is volatile. So, when you invest via SIPs, you are not putting a bulk amount at risk rather, you are mitigating the risk to a great extent by spreading the investment over time.
How do market cycles affect SIPs?
In Systematic Investment Planning, when markets are high, you get a lower number of units, however, that is compensated when the markets go down. Market cycles are common thinking of booking profits during peaks in the markets is also common.
When the market goes up or peaks to be precise, the value of your investment into SIPs surges drastically, and the same decreases when the market falls. However, SIPs are not stocks which you are trading or investing indirectly, that you book profit when the market is up and invest when the market is down.
Investing in SIPs requires you to have investment goals, and usually, people invest in SIPs for the long term. So, booking profits on SIPs shouldn’t be directly linked to market cycles like in equities or other investment instruments.
How can you book profit in SIPs?
Before you book your profits on the SIP, use SIP Investment Calculator to find out your returns on the same. Now, if you see you have reached your goal which you set while investing in this mutual fund scheme, then you can sell the fund’s units and realize the profits made.
However, if you think you are not there yet, and the amount you thought of accumulating from the investment, is yet to be achieved, but you are not sure how the markets will react tomorrow and you want to make the most out of the current surge in the markets, then you can withdraw your investments and then re-invest in other funds which seem more stable.
When to book profit on SIPs?
For booking profits in Mutual funds investment done via SIPs, you need to have a plan –
1- The first thing you need to consider is taxation. The markets may surge drastically within 1 year of your SIP investments in equity funds, and you may think of booking the profits. However, you need to consider there is a short-term capital gain tax that you have to pay if you are redeeming your equity SIP investments within 1 year from the date of investment.
2- There is even an exit load of 1% or more if the investments are redeemed within 1 year on many funds.
So, you need to consider these two factors apart from the profit generated by the fund to calculate the actual return after booking profits.
Final thoughts
If you want to book profits on SIP investments, make sure you are realizing profits. You need to analyze the market and your investment goals and returns, taxation, and other expenses before you book any profit on SIPs.