[PART 2/3]: Where to Park the Profits you have Booked & How long to should it be there?
Following on from the Part 1 of this blog series, we had learned why we need to book profits on investments today while Sensex is still around 46,500 to 50,000 levels. The prime reason was due to the overvaluation of Sensex and possibility of correction bubble blast expected soon.
Once the profits are securely booked, let’s understand Step 2/4 of our 4 Step Strategy to safeguard your wealth and take advantage of the correction phase.
STEP 2/4: PARK YOU MONEY IN LIQUID FUNDS WHILE YOUR PLANNING YOUR RE-INVESTMENT STRATEGY
While you plan a re-investment strategy after cashing in your profits, don’t keep your money un-invested in a bank account as that will only expose you to inflation induced loss.
Park your money in a liquid fund or Overnight Fund as a stepping stone while planning your re-investment strategy. So what are these 2 asset classes and why park you must money here temporarily?
Liquid funds are debt mutual funds which invest in money markets and debts/bonds with maturities of up to 91 days and no exit load after 7 days. Thus, you will buy a safe 7 day period to plan your investments in the coming days. Overnight funds are also debt mutual funds but invest in money market and debts having an overnight maturity and there is no exit load.
These funds will generate higher growth than your bank savings or current accounts. Also, Due to the extremely short-term nature of the underlying investments of these funds, possibility of losses is extremely low.
Thus, a low risk, low reward entity will buy you valuable time to plan with mental peace without the risk of losing the purchasing power of your hard earned money to inflation.
This step is recommended because most instruments in the market today are overvalued and lump-sum investment of your profits can put you at a risk of getting exposed to correction losses. However, not keeping money parked in liquid/overnight funds is just a stepping stone.
The next and final PART 3/3 of this Blog Thread will discuss Step 3/4 and Step 4/4 where we will discuss the investment execution strategy the best ways to execute them.