If you have invested in large equity mutual fund schemes in the last one year, you would probably have made decent returns, particularly in small and midcap funds. It is hence prudent now to at least book partial profits and move some money to debt funds.
Protecting your capital
After making stupendous returns, it would be important to protect your capital. When markets go up the risk to reward diminishes. This means you are taking a greater risk now for smaller profits than before.
You can switch between schemes at any time you want and there are some rules and charges that maybe levied. For example, man investors in ULIPs can move the portfolio to debt funds freely upto three or four times a year.
Why markets may fall?
The Sensex presently is trading very close to its peak and global markets too are on fire. In India, liquidity has largely driven the rally, though the economy is encountering some turbulence. Earnings are not great and the threat of inflation inching higher seems real. Private investment too is just not happening.
Against this backdrop the Sensex is trading at near 24 times trailing EPS, as against the average of 17 times. This is very expensive and is largely driven by liquidity. It would hence be a good idea to partially move money from equity MFs to debt MFs.
Once the markets fall, investors could get back into equity MFs all overe again. Check mutual fund dividends here