You might be tempted to time the market while investing in stocks. If you apply the same tactics even in case of mutual fund investments then probably that would be inappropriate. When you invest in mutual funds, a team of experts is managing your money. PersonalFN is of the view that you should rely on your fund manager for taking a directional call on the market. At present when markets are very close to their all-time high, you might be thinking about selling your mutual funds and taking profits on the table. Probably, you are worried that markets may again go down and you would lose exit opportunities. Very few have made money in last 5-6 years. However, having a perception that markets will continue to move down as soon as they are near their highs is flawed. There are several factors that move the market and concentrating only on the index level ignoring the fundamentals may prove to be wrong later.

Is your fund manager bearish too?

Mutual funds have been the net sellers this month. In the first 22 days of the New Year only during 3 trading sessions the mutual funds have turned net buyers. From the beginning of the month mutual funds have approximately sold equities worth Rs 1,500 crore. It is noteworthy that markets are absolutely flat for past few weeks. They appear to be undecided for now.
 

Mutual Fund Activity

Data as on January 22, 2014
(Source ACE MF, PersonalFN Research)  

Why mutual funds might be selling?

There could be a number of reasons why a mutual fund can offload equity. However at this juncture it appears that there could be one of the below mentioned factors or a combination of all might have prompted fund managers to sell equities.
 

• Profit booking
• Portfolio rebalancing
• Redemption pressure
• Cautious approach towards markets
   

However, looking at the cash positions of mutual fund houses, it appears that mutual funds are certainly not bearish on markets. Only 3 out of 42 mutual fund houses hold cash position in excess of 15% of their equity Assets under Management (AUM). There is a possibility that cash component might have gone up due to relentless selling of mutual funds, but it is unlikely to have reached to a level where you should press the panic button.

What should you do now?

PersonalFN is of the view that, you should focus on your long term goals and should aim to invest regularly in funds that optimise returns for the level of risk they expose you to. Achieving your life goals requires disciplined approach to investing and perseverance to ignore market momentum. Exiting markets and taking a negative call on the market direction could be one of the ways to profit but you should also look at the threats of following this approach. You may not be able to re-enter the market if it keeps raising despite you expected it to fall. Those who sold their mutual fund investments in pre-election days in 2009 thinking that there would be a fractured mandate, got a rude shock when markets were locked in the upper circuit twice post-results.

There are other ways too for beating investment blues. You should diversify across asset classes and follow a personalised asset allocation pattern. Within mutual funds, you should try to stick to stable funds coming from fund houses following strong investment processes. Diversification holds the key and not the market timing. Your fund manager takes a call on markets proving you ample of time to focus on your long term goals.

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webaccts@vivekam.co.in Jan 27, 2014 investments in multiple mutual funds some of them may be in profit and some in losses.

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