Nifty 50, Sensex at All-Time High: Should SIP investors interrupt compounding to book profit?

financialexpress.com:

BSE Sensex and Nifty 50 hit their respective all-time highs today. At the time of writing, Nifty 50 was at 20134.9 while Sensex was up 272.45 points to 67,739.44. (Check the latest data here).

Both indices hitting all-time highs have brought cheers to the market. However, market highs often leave mutual fund investors in a dilemma of whether to book profit or continue their investments. Here’s some help.

A report by FundsIndia shows that profit booking at market highs badly underperforms over the long run compared to the ‘buy & hold’ strategy. Therefore, mutual fund investors should never interrupt compounding.

The report has analysed the annualised performance of profit booking and ‘Buy&Hold’ strategies over a 10-year period. It shows how buy & hold works better than profit booking at all-time highs in the 10-year duration (See chart below)

How to understand the above chart:

A ’Buy and Hold’ investor is one who invests in equities and holds the same for the entire period. ‘Profit Booking @ X% Gains’ indicates portfolios of investors who deploy the profits made in equity into debt whenever the absolute gains reach 20%, 30% and 50% levels. ‘Profit Booking @ All-time Highs’ indicates the portfolio of an investor who deploys the profits made in equity into debt whenever the Nifty index touches an all-time high;

Nifty 50 TRI has been considered as the equity option and HDFC Money Market Fund has been considered as the debt option. Taxation impact has not been factored in for simplicity.

Also Read:Party at Dalal Street- Nifty, Sensex hits at all time high, Nifty at 20167, Sensex at 67771

The above chart has compared the 10-year annualised returns of Nifty 50 TRI for an investor, who continued to invest during the entire