Is it a good idea to redeem Mutual Funds if they give high returns in a short duration?

This is an interesting question considering the fact that the units of the underlying companies in the Mutual Fund have risen in the past month due to an influx of money.

The Nifty 50 index has risen by only 3.5% in the past 1 month (July 6th – Aug 6th) window.

Nifty 50 Index Performance over 1 month

In contrast, the JSW Steel (part of Nifty50) has risen by ~12% in the past 1 month (July 6th – Aug 6th) window.

JSW Steel Stock Performance over 1 month

UltraTech Cement (part of Nifty50) has risen by ~9.5% in the past 1 month (July 6th – Aug 6th) window.

UltraTech Cement Stock Performance over 1 month

Tech Mahindra (part of Nifty50) has risen by ~20.6% in the past 1 month (July 6th – Aug 6th) window.

Tech Mahindra Stock Performance over 1 month

Reasons for money influx:

  1. Good Quarterly results of listed companies
  2. New IPO Launches including Unicorn Startups like Zomato etc.
  3. Good performance of IT, Pharma, FMCG, and Realty
  4. Return of demand which is a positive for consumption
  5. Improvement in the GST Collection
  6. Maintaining of rates by the RBI to promote liquidity

Question: Is it good to redeem investment in Mutual Funds if the value has increased by 25%-40% in a short span?

As an investor in Mutual Funds(Equity, Debt, and Balanced), I would suggest against this owing to the following reasons:

  • Despite inflow in stocks owing to optimism, the long term story about India’s growth has been strengthened further despite jolts by the 1st and 2nd wave of Covid-19 and lockdowns
  • Indian companies are migrating to the next level in an organic way. Midcap to Largecap and Largecap to Bluechip. Holding stocks of these companies directly or via Mutual Fund can add wealth in a compounded manner over a decade that will be much more than what is being achieved in the short term
Value Investor Charlie Munger’s views about stock investing

Hope you find this helpful. Do share and subscribe if it has been able to bring clarity with regards to investing

Look at the Bigger Picture

Also, you might like another post that tries to emphasize the “Power of Compounding”

Investing in the Stock Market

Happy Investing!

References:

  1. Nifty crosses 16,000, Sensex at new high: Key factors behind bull run on D-Street
  2. Sensex, Nifty Rise Almost 2% In A Day, Is There More Steam Left In The Market?
  3. Sensex today: Sensex jumps 546 points; Nifty settles above 16,250: Top reasons behind surge – Times of India

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