Which is the right time to sell Equity Mutual funds?

I am 30 years married and reside in Chikkamagaluru. I had invested about INR 5 Lakhs in three reputed equity mutual funds via SIP. I have made 20% average profit within a year on these funds and my friends have advised me to sell them. Is this a good move. Please advise?

Asked by : Nitesh - Chikkamagaluru | 289 Views

You should be guided by your financial goals when you invest in an equity mutual fund.You should sell a fund and get your money out when you need it. Check your financial goals and decide why you have invested in equity mutual funds. You should stay invested for around 4 to 5 years, continue your SIPs, till the money has grown to what you need.Now, your financial goal may be money for a down payment for a house, or pay for your child's education, or whatever else you need. Withdraw the money from the equity funds and start parking it in a liquid fund as you near your goal. Liquid funds are simply debt mutual funds that invest your money in very short-term market instruments. They usually have a maturity of 91 days and give returns much higher than savings bank accounts. You can use an automated STP (systematic transfer plan) for this which will be convenient.When you are setting up an STP, you are actually instructing the fund house to sell a part of your investment in the equity schemes and invest the money in schemes like liquid schemes. You have to spell out the amount, mutual fund schemes, STP date and the investment horizon. If you want to avoid paying capital gains tax, you can opt for a dividend reinvestment plan in the liquid scheme. Dividends are paid on all gains and the money is directly reinvested in the same scheme in such a way, there is 0 capital gains.