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Originally Posted by Prudent_Investor
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Usually, FII fund managers book some profit in their portfolios towards the end of the calendar year, and the same could start now
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Quote:
Originally Posted by vinvest
From a fund manager point of view what exactly is profit booking?
Saying I am a fund manager, my fund has currently 3 stocks
stock A worth Rs. 1000 at current price
stock B worth Rs. 500 at current price
stock C worth Rs. 750 at current price
My Total Fund value is 2250.
Now I book profits on A & B - I sell them off.
So now my fund's portfolio is
Stock C - Rs 750
Cash - Rs. 1500
Total fund value is 2250.
If they use the cash to buy new stocks X & Y.
Again, their total fund value isn't going to change.
So how exactly does booking profit help them get better bonuses?
Are they evaluated only on stock they have already sold? Shouldn't they be evaluated on how much they increased the fund value or NAV or something like that?
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Some PMS or fund managers charge on profit booked. (
and never on loss booked 
)
e.g
Sharekhan's "20% profit sharing on booked profits on quarterly basis."
Another point is they anticipate market to go down in short term but want to
lock their bonus.
e.g Share ABC and XYZ fluctuates between 100 and 200 in a quarter. In Oct it is 100; 200 in Nov and again 100 in Dec.
To maximize brokerage from profit sharing it is prudent to churn the portfolio a lot when near the peak.
Book profit in one overvalued share, get the profit share, buy another overvalued share get the brokerage.
In short screw the client.