Is it the right time to book profit from Equity?

There is no ideal time to enter and exit the stock market. So, instead of being swayed by market volatility, focus on what you can control and keep a long-term holding horizon.

The life of an average investor during the last six months was a turbulent one. From April till August, it had made a significant recovery, climbing up by 31%. Within a short span of six months, Investors witnessed both sudden fall and smart recovery of the index. Given this background, many are wondering what will happen next. The question in most investors mind is whether they should sell a significant part of their equity holdings now as probably the market may fall or hold on to their shares.

What caused this volatility?

The COVID-19 pandemic which started at the beginning of the year is one of the major reasons for such market volatility. Though the virus was reported sometimes in December 2019, the impact was felt across the world especially within developed economies. Markets across the globe collapsed during March. The BSE Sensex touched a low in March 23 and on the same day S&P 500 of the US reached the bottom at 2237. The governments of various nations announced various preventive and relief measures, series of lockdowns, etc. Countries across the globe reported sharp reduction in their GDP coupled with the impact of pandemic leading to salary cuts, jobs losses and shutting down of businesses. India reported GDP contraction of 23.9% on year on year basis during the first quarter of financial year 2020-21.

Focus on only what matters

The entire world is anxious to now when this crisis will get over, but nobody has any concrete answer. Generally, during such pandemics, various assumptions and theories float around but no one knows when normal times will be back. In a way, uncertainty is an investor's friends. Those who have invested during march are reaping the benefits and those who simply stayed put and waited patiently have also recouped their losses. Thus, it does not matter how hard you try - you cannot wish away the crisis. But make sure that you follow your investment plan and if required, mare suitable changes according to your income levels, risk taking capacity etc.

Is it a good time to exit the market?

Investment science literature and a large number of empirical studies states that market movement should not be the reason to buy or sell shares. As an investor you should sell shares only on tow occasions. One, if you need the money urgently and two when investment goals are achieved. If that is not the case, it is advisable to follow your original investment plan. As an investor you should care about your initial investment and value while exiting. Assuming that your investment goals are nearing, do no wind up your portfolio. Instead make a systematic withdrawal plan (SWP). If there is no immediate requirement of funds, transfer your corpus to safer instruments such as liquid or short duration debt funds, again through systematic transfer plan.

To conclude, there is no ideal time to enter and exit the stock market and focus on what you can control and keep a long term holding period.