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).
Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! 🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥
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.
🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 5000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! ⇐ More than 1,000 investors and advisors use this!
New Tool! => Track your mutual funds and stock investments with this Google Sheet!
We also publish monthly equity mutual funds, debt and hybrid mutual funds, index funds and ETF screeners and momentum, low-volatility stock screeners.
![Follow Freefincal on Google News Follow Freefincal on Google News](https://freefincal.com/wp-content/uploads/2023/07/Follow-Freefincal-on-Google-News.jpg)
![Subscribe to the freefincal Youtube Channel Subscribe to the freefincal Youtube Channel. Subscribe button courtesy: Vecteezy.](https://freefincal.com/wp-content/uploads/2023/07/Subscribe-to-the-freefincal-Youtube-Channel.jpg)
![Follow freefincal on WhatsApp Channel Follow freefincal on WhatsApp Channel](https://freefincal.com/wp-content/uploads/2023/09/Follow-freefincal-on-WhatsApp-Channel-300x83.jpg)
![Listen to the Lets Get Rich with Pattu Podcast Listen to the Lets Get Rich with Pattu Podcast](https://freefincal.com/wp-content/uploads/2023/07/Listen-to-the-Lets-Get-Rich-with-Pattu-Podcast.jpg)
![Lets Get RICH With PATTU podcast on YouTube Lets Get RICH With PATTU podcast on YouTube](https://freefincal.com/wp-content/uploads/2023/08/Lets-Get-RICH-With-PATTU-podcast-on-YouTube-644x362.jpg)
- Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
- Have a question? Subscribe to our newsletter using the form below.
- Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.
Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!
About The Author
![Pattabiraman editor freefincal](https://freefincal.com/wp-content/uploads/2019/11/Pattabiraman-author-freefincal-article-bottom.jpg)
Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3,000 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 condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course! Increase your income by getting people to pay for your skills! ⇐ More than 700 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 who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!
Our new book for kids: “Chinchu Gets a Superpower!” is now available!
![Both boy and girl version covers of Chinchu gets a superpower](https://freefincal.com/wp-content/uploads/2021/02/Article-bottom-Chinchu-gets-a-superpower-front-cover-for-girls-and-boys.jpg)
![Feedback from a young reader after reading Chinchu gets a Superpower (small version)](https://freefincal.com/wp-content/uploads/2021/02/For-bottom-Feedback-from-a-young-reader-after-reading-Chinchu-gets-a-superpower.jpg)
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Do you want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & its content policy. Freefincal is a News Media Organization 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: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
- Twitter @freefincal
- Subscribe to our YouTube Videos
- Posts feed via Feedburner.
Our publications
You Can Be Rich Too with Goal-Based Investing
![You can be rich too with goal based investing](https://freefincal.com/wp-content/uploads/2016/11/You-can-be-rich-243x300.jpg)
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want
![Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you want](https://freefincal.com/wp-content/uploads/2017/05/2-mini-Cover-pink.jpg)
Your Ultimate Guide to Travel
![Travel-Training-Kit-Cover-new](https://freefincal.com/wp-content/uploads/2019/11/Travel-Training-Kit-Cover-new.jpg)