Indian equity benchmark indices opened sharply higher on Monday, with the Nifty 50 jumping 1.53% to 23,984.85 from Friday’s close of 23,622.90. The Sensex also surged 1.59%, opening at 76,725.27 against its previous close of 75,527.95. The rally was driven by optimism over the upcoming US-Iran peace deal and easing crude oil prices, which pushed WTI crude down to around $80 a barrel.
At market highs, one of the most common dilemmas faced by investors is whether they should book profits after the delivered strong gains or simply remain invested for the long term. While profit booking may seem like a thoughtful strategy, historical data suggests that patience often pays off.
A FundsIndia’s Wealth Conversations analysis of 17 rolling 10-year periods between 2000-2009 and 2016-2025 shows that a buy-and-hold strategy generally outperformed various profit booking approaches.
The study found that investors who adopted a simple buy-and-hold strategy in the TRI generally outperformed investors who systematically booked profits and shifted those gains to a money market fund.
The analysis compared a buy-and-hold investor with four profit-booking approaches:
- Booking profits whenever absolute gains reached 20%
- Booking profits whenever absolute gains reached 30%
- Booking profits whenever absolute gains reached 50%
- Booking profits whenever the Nifty touched an all-time high
In each case, the booked profits were assumed to be transferred to the HDFC Money Market Fund, while the remaining capital continued to stay invested in equities.
Buy-and-hold outperformed in most periods
The data reveals that investors who stayed invested in Nifty 50 TRI for the entire 10-year period earned annualised returns ranging from 6.7% to 20.1%.
For example, during the 2001–2010 period, the buy-and-hold approach delivered an annualized return of 19.1%. This simple strategy outperformed the profit booking at 20% gains strategy by 5.1 percentage points annually. Also, it beat the 30% profit-booking strategy by 5 percentage points and the 50% profit-booking approach by 4.5 percentage points annually.
Similarly, investors who remained invested during 2003-2012 made annualised returns of 20.1%, with buy-and-hold outperforming the 20%, 30%, and 50% profit-booking strategies by 4.2, 3.9, and 3.3 percentage points, respectively.
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The myth of selling at market highs
Many investors believe that selling at all-time highs is a smart way to earn the highest returns. However, the analysis indicates that this approach also resulted in lower returns than staying invested.
The underperformance was particularly visible during several periods. Between 2001 and 2010, buy-and-hold outperformed the all-time high profit-booking strategy by 5.4 percentage points annually.
Similarly, outperformance was seen during 2003-2012 (4.2 percentage points) and 2016-2025 (2.9 percentage points).
This highlights an important reality of equity investing. Selling simply because markets have reached a new peak may result in missing the next phase of wealth creation.
Timing market highs proved difficult
This was visible across multiple time periods over the past 25 years (2001–2010, 2003–2012, 2012–2021, and 2016–2025). Buy-and-hold generated annualised excess returns ranging from 2.9 to 5.4 percentage points over the all-time high profit-booking strategy in different periods.
This shows the challenge of accurately timing exits and re-entries. Investors who exited after markets reached new highs often missed subsequent rallies that contributed significantly to long-term wealth creation.
Why profit booking often underperforms
The findings highlight a fundamental characteristic of equity investing. Strong returns often come from staying invested during both bear and bull markets.
When investors book profits and move money into debt instruments, they reduce their exposure to future equity gains. While debt investments offer stability, they typically generate lower returns than equities over long periods.
The data suggests that this trade-off often worked against long-term wealth creation. In most rolling periods, the reduction in equity exposure outweighed the benefits of moving profits to a safer asset.
There were a few exceptions
But the advantage of staying invested was not universal. During the 2006-2015 and 2007-2016 periods, buy-and-hold marginally underperformed some profit-booking strategies. However, the difference was relatively small, ranging between 0.2 and 1.7 percentage points annually.
These exceptions suggest that profit booking can occasionally work in specific market environments, particularly when there are long periods of continued volatility.
The compounding effect matters
works best when investments in equity remain untouched. While investors may still choose to rebalance portfolios or book profits to meet financial goals, the data indicate that systematically exiting after predefined gains often results in lower long-term returns compared with remaining invested.
The analysis of 25 years of rolling market data suggests that remaining fully invested in equities generally produced better long-term returns than systematically transferring gains to debt after reaching predefined profit targets or market highs.
Disclaimer: This is purely for educational/ informational purposes and should not be taken as any sort of investment advice. Always consult a SEBI-registered advisor before making any investment decisions.