MUMBAI: Does the thought of looking at the statement showing the performance of your mutual fund investments fill you with a sense of dread? Are you
being haunted by a sense of impending doom as you wait for the crash in stock prices to be reflected in your mutual fund investments? But before concluding that you must salvage whatever you can from the equities, there are a few factors to ponder over.
Fund profile
Equities represent risk and can beat the acceleration due to gravity during their decline. Equity mutual funds, hence, cannot remain immune from the downward rally. The NAVs will slip and there will be value loss. But there is a need to think why did the fund lose and to what extent? Check your fund's fall against the benchmark set.
Aggressive sector bets may lead to steeper falls than the benchmark set. This may explain the reason behind the gains you saw in the bull run. Most good funds lose less than their benchmark, posting an outperformance. Though, such 'outperformance' brings in little solace to those who lost 40% in an 'outperforming fund' when the benchmark lost 42%.
Here the number is to be seen as a culmination of fund objective, investment universe, investment style along with the portfolio bets. Please ask yourself a question: "Why did I get invested into equity mutual fund?" If it was anything other than creation of wealth in the long-term, then yes, you made a mistake. But if you are one of those who were keen to build long-term portfolio, then this is not the time to pull out, if not add.
If you are long-term investor, do check if the objective of the fund is in sync with your objective. If there is a mismatch, then better move out. The investment universe is also important. Sector funds may come under hammer if the sector they are invested into is dumped by investor community. Hence, better to stick with diversified sector funds in such turbulent times.
Aggressive funds that have exposure to less liquid stocks or momentum themes tend to post larger losses. So, check the investment style of the fund. If you are not comfortable with an aggressive fund, do switch to a large cap well diversified offering.
Risk factor
If everything is in place about the fund, but the downward journey is making you tense, better to look at yourself. Accept the responsibility of your decisions. It was the greed that brought you here and now the fear is making you rethink your entry, unfortunately at a time when the exit won't be painless.
If you cannot take the risks associated with equities and spending sleepless nights due to the market meltdown, better exit the equity fund and buy peace of mind with bank fixed deposits. But those who understand the fear factor around and have the nerve to turn greedy when all others are fearful, should hold on to their investments, if not add. Systematic investment plans are to be continued with a long-term horizon.
Exit strategy
If you find that you have the ability to hold, but the fund is not delivering as per the investment objective and hence there is a steep fall in NAV, then may be this is the time you move your money from one fund to another.
Corrective actions, however, are not to be taken in a hurry but after a thorough due diligence. Testing times are the apt times to judge funds. Striking the balance between sitting complacent and pressing panic button is a tight rope walk for an investor.
If you are not in a position to take a call, engage a professional. Last but not the least, Buffet wisdom prevails, "It is the time to be fearful, when others are greedy and to be greedy when others are fearful." May be they have not fooled you, but yes, Mr Market is now acting weird to fool you around!
http://economictimes.indiatimes.com/Personal_Finance/Are_your_investm...
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