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Indian equity investors have not made money in the last five years. Union KBC Trigger Fund aims to capture the potential upside in equities over next three years. More important is that the fund will offer investors an exit, if it makes an absolute return of 30 percent, and thus will protect their profits. The fund house claims that in the last 10 years, in 80 percent of the observations, three-year rolling absolute returns on S&P BSE 200 were at least 30 percent. Though a point to note is this is neither a guaranteed returns fund nor a capital protectionoriented offering. The idea makes sense for those who are in equities for a stipulated target return of 30 percent and lack discipline to sell out. The strategy can help you book profits, by keeping your emotions away.

However, many market participants ask investors to base their sell decision on factors beyond targeted returns. Look at risk-related to the asset class you are investing in. A debt fund may offer you 30 percent absolute returns in the next three years. If you are investing in equity, your aim must be higher. Your expected returns from a risky asset class must be higher than what you can expect from a relatively low-risk asset class. Ideally an equity investor should buy if the share quotes below its fair value and sell only if the price rises above the fair value of the security.

Consider a situation, you have identified a share of which fair value is at 100, and you buy it at 50, then you can sell it if and only the price is closer to 100, if not above 100. Also, you cannot ignore the fact that the fair value of a company may rise if it is doing well and you have to account for it when stock price approaches the fair value, you might have calculated a year ago, he adds. If you sell for a pre-determined return of say, 30 percent or even 50 percent, you can never own a longterm growth story such as HDFC Bank or TCS in your portfolio.

This may sound great, but not many individual investors can really do stock picking. They have to rely on equity mutual funds. If you are investing through mutual funds, you will be better of being underweight on equity when valuations of broad markets soar and overweight on equities when valuations of broad markets are low. That is why many smart investors prefer to invest in equities when the Nifty price earnings multiple quotes below 15 and prefer to sell when it crosses above 25.

Also, understand your financial goals and your cash flow needs. If you are saving for your retirement which is 25 years away from now and you get an exit at say, 50 percent appreciation, on an amount of say 1 lakh, you will invariably invest in some other equity fund. And this new investment obviously will be made at a higher absolute level of the market, which means you are not eliminating risks. Also, you cannot ignore the tax implications associated with selling equities. In short, if you are a longterm investor, probably you have to think beyond the targeted returns and what happens in the short term in the market.

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