Indianprofits.com

Over the past ten years investors had to contend with large losses and large gains due to the down and hike in the sensex. To overcome the loss of investors, the need for a financial strategy which enhances returns is very important. Profit booking is such a strategy which enhances returns.

Profit booking is the term that we use mostly in stock trade. Booking profit is nothing but encashing the stock when it reaches its target price or ‘gain in a share by selling it this is called profit booking, making profit by selling a share which has gone above its purchase price. It can be done by individuals or by big operators or by brokers.

In profit booking, you will wait and watch your stock to rise and when it starts decreasing, you will take out your profit from that stock. If you go to visit any mutual fund broker, he will say, you have to stay invested longer periods to earn maximum. In a number of months, the stock prices down sharply, after that there must be a hike in the market. If you are stayed out from that hike period, you would not have made any profit; you will have to contend with low returns.

Past few months, due to financial crisis all market values had slide down. At present, there is a hope in the investor’s side due to the hike in the Sensex and they are willing to stay for the market for long periods. Instead of all, a large section of investors is still not feeling comfortable and are showing tendencies to book profits.

The main key factor that determines the best investor is their ability to respond with risk factors. Any strategy of staying in market should be supported by monthly returns data. Such data indicates that there is a larger chance of smaller monthly losses and a smaller chance of significantly larger gains, you should then stay invested in the market. If you miss some of the best months you will earn negative returns.

In addition, large losses outweighed the large gains. Thus it is clear that profit booking is just as important as staying invested through market downturns. If the monthly returns follow the same pattern then there may be no option but to book profits. In addition if the market has entered bullish phase (refers to any market condition where prices are rising and stocks are gaining in value) you may need to hold on longer before booking profits. If the trend is bearish (refers to any market condition where prices are falling and stocks are losing their value) you may need to book profits much earlier.

It is also important to create right kind of portfolio. Portfolio in finance is a collection of investments held by financial institutions or a private individual. One of the basic objectives of a portfolio is to generate cash for expenses. It also gives maximum return to the investor. Holding a portfolio is part of an investment and risk limiting strategy called diversification. The goal of diversification is to reduce the risk in the portfolio. It reduces both potential for gain and loss and allows more consistent performance under a wide trading range of economic conditions.

There is another facility called STP (Systematic Transfer Plan), can be used as another way in case of profit booking. Using this facility the investor can transfer a fixed amount of money from one type of fund into another type of fund. For example, an investor can transfer a fixed amount from a debt fund into an equity fund or vice versa. While following this strategy the investor should note that when transferring the fixed amount into another fund, he is withdrawing from one fund and investing into another fund. So while withdrawing from one fund he has to pay the exit load and he has to pay the entry load while investing into the other fund. So he should take into consideration this cost structure before using this STP facility.

In a booming market, an apt decision about your fund is yourself. Analyzing the situations with the help of a financial advisor will leads you to take best options for your investments. For better profit you must also consider other factors such as strength of the stock, technical indicators which drive the market momentum, macro environment etc. The investor must also consider the market condition, his requirements and risk associated. If the investor follows this systematic approach he will definitely be better in satisfying his goals. So start investing systematically and withdraw systematically to fulfill your goals.