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I have been traditionally parking my savings in PPF and POMIS though I am are not eligible for any tax savings. I am adequately insured. I have been investing Rs 1,000 a month through systematic investment since May 2002 in HDFC Equity (Growth) and Franklin Prima Plus (Growth) and now have Rs 55,000 in these funds.

My query is, being a long-term investor, should I take out the profits as and when the fund earns it? Or should I forget about the profit and continue investing until I need the money?

I also intend to continue investing in the above schemes for my lifetime. How often should one review the investment and when should I switch?

A. Srikanth

A decision about whether you should take profits on your funds or remain invested will depend on two factors: how comfortable you are with your present asset allocation and your requirements of cash over the next few years.

Do run a check on the present market value of your equity fund investments and evaluate what proportion they now make up of your total savings.

If you find that your equity investments have grown to a point where you are quite worried about losing part of the investment to a decline in the stock market, you should book profits to reduce your fund holdings to the level you are comfortable with.

There are no blanket rules about what proportion of your total investment should be in equity investments. But if you are close to retirement or are a conservative investor with a relatively small nest-egg, you should probably limit your equity investments to no more than 15-20 per cent of your total portfolio.

If you would not worry about a temporary loss of value on your equity portfolio as it stands now, you can stay invested. As you started investing at a time when equity prices were ruling at low levels, you have the comfort of having built up a significant portion of your portfolio at attractive entry points.

This will provide some protection to the value of your investments, should the stock market experience a corrective phase. As you have a fairly long investment horizon of 10-15 years, you also have a reasonable amount of time to make up for any corrective phase in the equity market.

This apart, a decision to book profits will also depend on your investment goals. With the value of your equity holdings appreciating sharply, this may be a good time to redeem units in order to meet any financial outlay that you foresee over the next three-five years.

You cannot depend on your equity funds to deliver good returns as and when you may require cash. If the market is in the midst of a bearish phase or even a short-term correction when you require the cash, you may be forced to redeem your investments at a depressed value. Your present holdings make the cut as both funds have a consistent five-year record. We suggest that you should check on your portfolio at least twice a year to see if they continue to outpace the market.

You need not worry if your fund is not among the top performing funds for short periods of time such as a quarter or half-year. Switch out of your present funds only if you find them lagging the BSE Sensex or the Nifty for a year or more at a time.

Queries may be e-mailed to mf@thehindu.co.in, or sent by post to Business Line, 859/860 Anna Salai, Chennai 600002.

Aarati Krishnan

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