Advantages Of Partial Profit Booking

Partial profit booking is a great technique of booking profits on investments. It is a different from the conventional way of profit booking and is aimed to make more out of profitable trades.

It is well known that the main idea behind any investment is capital appreciation or monetary growth. The main objective is to get rewards out of the investments in the form of profit. Wherever there is a chance of reward there is a possibility of risk.

However, many investors tend to get so much carried away by greed of making more out of profits that they tend to forget the risk aspect part of an investment. It is seen that in the pursuit of making more profits out of good trades they forget to capture the profits. Ultimately they end up losing money

PARTIAL PROFIT BOOKING

Partial profit booking is way of profit booking which aims at preservation of profits and ensure that profits are not lost due to sudden price damages in the stock. It aims to minimize risk and control the conservation of profits by booking it in a planned approach.

As we know stock markets are uncertain and volatile and anticipate their movement is very difficult. The idea behind partial profit booking is to book some part of the profits and thereby reduce the risk exposure of investments. If the outstanding investment sees losses, then it would be compensated by the profits which had been booked earlier. If the outstanding investment sees upside then these profits would add up to the profits booked earlier..

Example

An investor invests Rs.1, 00,000 in shares of a company X. Within a span of 3 months the investment sees a growth of 50% and the investment valuation turns Rs.1, 50,000. After 3 more months the market crash and the shares of X see a huge fall of 40% and the valuations turn Rs.90, 000. If the investor had continued to hold the shares during the entire time span, he would end up making a loss of Rs.10,

Let us divide the investment sum of Rs.1, 00,000 into 2 parts of Rs.50,0000 each and let us call these Investment Pt 1 and Investment Pt 2.

In this table I have shown the fate of the two parts of the investment which went through profit booking in two phrases. They are shown as Investment Pt 1 and Investment Pt