One of the commonest things about Mutual Funds is when is a great time to invest. Though answers to this type of question are readily available, a relatively less deliberated or talked about the theme is when is it good time to liquidate your mutual funds investment. Such a thing most commonly emerges when markets reach all-time highs or simply experience a significant correction.
The times of Extreme Investments Market Elation
Extreme market euphoria can be really taken as a situation where markets have already reached all-time type of highs and investors go on to invest more expecting further upward movement. In such a situation, it is common for many types of investors to start investing in stocks and investment products that actually they do not fully understand. Such a euphoria however does not stay forever and soon enough the markets experience a correction blooket join.
You can conveniently spot such type of investor attitude in markets if you know the main signs to look for. Have a look at some of the signs below:
- A huge number of growth stories in the absence of sufficient proof of earnings
- The incapability of analysts to simply provide a reasonable explanation for rising stock costs
- The massive increase in the cost of penny stocks
- Huge oversubscription of Initial Public Offerings (IPO’s)
If you experience any of these signs, it could be a good idea to simply liquidate your investments and book profits. Such redemption is going to enable you to equalize your redemptions just like a Systematic Investment Plan enables you to average out the expense of unit purchase.
Know when is it a good time for you to exit
One way to find out in case it is a good time to liquidate your investment is to compare the overall valuation of small-cap stocks to that of even large-cap stocks. In case small-cap stock estimates exceed large-cap valuations by ten percent it is a great time to play it safe and simply book the profits. Though there is always a danger of some opportunity cost once you redeem your investments, such is going to be a tried and tested way of decisive a suitable time to exit your overall mutual fund type of investments.
Reinvesting your Redemption Proceeds
Once you have successfully liquidated your investments, the next part of the exit strategy is simply figuring out what to do with your overall profits. The perfect solution is to reinvest your profits into different asset classes that may get used as a private against overvaluation in equity markets. Available options encompass Short-Term Debt Funds, Gold, and Fixed Deposits. Such investments once paired with Equities can help you boost the overall downside protection in your overall investment blooket code portfolio.
To sum up, whether you have different top performing mutual funds in india in your portfolio or any other funds; knowing when you should liquidate your funds is critical. Once you understand it well and redeem and then re-invest the gains; you can make a great profit out of your cycle of investments in mutual funds.