Last Updated on November 1, 2021 at 8:38 am
A viewer on our YouTube channel asks, “Sir, Kindly do video…how to redeem only profit from mutual funds without reducing unit’s (if we book profits our capital amount also reducing because units get reduced)”.
Experienced investors and regular readers of freefincal would immediately know that the answer to this is: No, it is not possible to redeem only profits from mutual funds (or shares) unless you are a fan of mental accounting.
Unfortunately, the term “profit-booking” – popular among traders- permeated investor and mutual fund communities. This does not literally mean removing (only) profits.
When you buy a bond or a fixed deposit or any interest-bearing instrument, you can separate the profit or gains – in this case, the interest – from the amount invested (the principal).
🔥Secure your future with our Robo-advisory tool trusted by over 3,500 investors and advisors. From effortless retirement planning to funding your children’s biggest dreams, turn your financial goals into reality. 🔥
Subscribe for money management solutions via email! (Link takes you to our email sign-up form) Join 32,000+ readers in our community.
👉 New Tool Alert! NaviPlan: A Privacy-Focused Multi-asset Tracker and Goal Planner 👈
Such a separation is only notional in the case of any commodity that you need to buy and sell at market price. If you buy one share or fractional units of a mutual fund, its current value = (no of units ) x purchase price + (no of units) x change in price.
This, of course, is the same as current value = (no of units) x current price.
You can measure the gain (price change) associated with each unit, but you cannot sell that gain alone.
For example, you buy 25 MF units at a NAV of Rs. 10 per unit. After a while, the NAV becomes Rs. 20 per unit. So your investment of Rs. 250 has doubled in value. Suppose you redeem Rs. 250. Mentally you have got your principal back, but the number of units has also decreased in half.
A redemption of Rs. 250 at a NAV of Rs. 20 per unit implies, 12.5 units have been sold back to the AMC. So you cannot pull out NAV appreciation alone, keeping the units constants.
Suppose you had invested in a dividend option of the fund, and the AMC declares a dividend of Rs. 10 per unit. You will receive an amount of Rs. 250 a dividend (which is taxable as per slab). The number of units you hold will still be 25, but the NAV of the fund after the dividend declaration will fall to Rs. 10 again (assuming the dividend was declared when the NAV doubled). So the value of your investment will only be Rs. 250.
Going back to the growth option example: 12.5 units were redeemed at a NAV of Rs 20 per unit. Now, these units were purchased at a NAV of Rs 10 per unit.
So using:
Redemption amount = (no of units redeemed ) x purchase price + (no of units redeemed) x change in price
250 = 12.5 x (10) + 12.5 x (20-10).
The point is, every redemption we make will always have some amount of principal and some amount of capital gain or loss. You cannot have one without the other as we are buying units from the AMC when we invest and selling units to the AMC when we redeem.
This is hardly a problem. If you are going to redeem and use the money, there is nothing to complain about. If you are going to rebalance from equity to fixed income, there is nothing to complain about. We recommend mutual fund investors avoid using the term profit booking or at least appreciate what it entails.
We are on Google News
Use this button to add freefincal.com as a preferred personal finance source on Google News. 
Add freefincal as a preferred news source
You can also follow freefincal on Google News. 
Explore 1,000+ videos on YouTube!
Subscribe to get posts via email!
Join 32,000+ readers and get free money management solutions delivered to your inbox! (Link takes you to our email sign-up form)Join our WhatsApp Channel
Explore our products
🔥Join our community of 9000+ users! 🔥 Use our Robo-advisory Tool to create a complete financial plan! More than 3,500 investors and advisors use this! Use the discount code robo25 for 20% off. Plan your retirement (early, normal, before, and after), plus non-recurring financial goals (such as child education) and recurring financial goals (such as holidays and appliance purchases). The tool helps anyone aged 18 to 80 plan for retirement, plus six non-recurring and four recurring financial goals, with a detailed cash flow summary. Our Flagship Course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! More than 3,500 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market conditions! Watch the first lecture for free! One-time payment! No recurring fees! Lifelong access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence. Join the freefincal investor circle! An exclusive space for investors, advisors, fintech employees and students to access financial planning and insurance tools, mutual fund and stock analysis tools, coding strategies and Excel macros for data extraction. 750+ members are now part of our investor circle. Increase your income by getting people to pay for your skills! More than 900 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner seeking more clients through online visibility, or a salaried individual looking for side or passive income, we will show you how to do it by showcasing your skills and building a community that trusts and pays you. (Watch the 1st lecture for free). One-time payment! No recurring fees! Lifelong access to videos! Track your mutual funds and stock investments with our Google Sheet! We also publish monthly screeners for- Equity mutual funds
- Debt and hybrid mutual funds
- Index funds
- ETFs
- Momentum and low-volatility stock screeners
Our Podcast: Let's Get Rich With Pattu
On Spotify: Let's Get RICH With PATTU! Every single Indian CAN grow their wealth!
Audible Link: Listen to the Let's Get Rich with Pattu Podcast
You can also watch podcast episodes on the OfSpin Media Friends YouTube Channel
Listen to the Let's Get Rich With Pattu podcast on YouTube.
Now watch Let's Get Rich With Pattu தமிழில் (in Tamil)!About The Author
Dr M Pattabiraman giving a lecture
Dr M. Pattabiraman (PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over 14 years of experience publishing news analysis, research and financial product development. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free, AUM-independent investment advice. Connect with him via Twitter(X) LinkedIn YouTube Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (Published by CNBC TV18) for DIY investors. 
This book helps you ask the right questions and find the right answers. It also includes nine online calculators to create custom solutions.
(2) Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want. 
Both the boy and girl versions of "Chinchu Gets a Superpower".
Most investor problems stem from a lack of poor decision-making. We made bad decisions and money mistakes when we started earning, and we spent years undoing them. Why should our children go through the same pain? What is this book about? As parents, what if we had to groom one ability in our children that matters not only for money management and investing but for every aspect of life? My answer: Sound decision-making. So, in this book, we meet Chinchu, who is about to turn 10. The story follows what he wants for his birthday and how his parents plan it, while also teaching him key ideas about decision-making and money management. What readers say! 
Feedback from a young reader after reading Chinchu Gets a Superpower!
Must-read book even for adults! This is something that every parent should teach their kids right from a young age. The importance of money management and decision-making based on their wants and needs. Very nicely written in simple terms. - Arun.
About freefincal & its content policy
Freefincal is a News Media organisation dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact Information: To get in touch, please use our contact form. (Sponsored posts or paid collaborations will not be entertained.)Our publications
Your Ultimate Guide to Travel
