Explain When Is The Right Time To Redeem Your Funds?
Most of us are careful while making investments. Redemption of funds are equally important and will decide your total return from the investment. We have the tendency to seek excitement and action in what we do, so is the case with investments. Every time investments generate decent amount of returns due to Bull Run in the stock market, we tend to think, “Should I start booking the profit and exit from the market”? We have also seen instances where some of the investors redeem the investments when the market crashes to cut the losses. So, what is the right time to redeem the investments?
Before you arrive at the answer to this question, it’s wise to answer the below mentioned questions:
1. What’s the …show more content…
Should you time the market?
Timing the market is difficult. Better returns are earned by investors who invest regularly. So redeeming the funds to time the market is also not recommended. It is better to remain invested rather than trying to time the market.
Stock markets present different scenarios in front of us. Benjamin Graham has put it beautifully using allegory of Mr. Market. Mr. Market is what today would be called manic-depressive, with his estimate of the business's value going from very pessimistic to wildly optimistic. The reader is always free to decline his offer, since he will soon come back with an entirely different offer.
We can take advantage of erratic behaviour of Mr. Market using the concept of tactical asset allocation strategy. Tactical asset allocation decisions are based on the behaviour of the market. Following this strategy we will book profits when markets have appreciated and invest more when stock prices have fallen.
Price Earnings (P/E) ratio is generally used to take tactical decision on asset allocation. Higher P/E ratio indicates that the stock market is expensive and there is probable market correction round the corner. A lower P/E ratio indicates an opportunity to invest in