The mandate is clear. Mutual fund investors do not like market volatility. They have shown their dislike by exiting from their funds in December 2000.

The December 2000 data published by the Association of Mutual Funds in India (AMFI) is not very pretty. Net inflows amounted to a mere Rs 470 m. However even that did not stop net assets under management from slumping to Rs 993.3 bn as on December 31, 2000, from Rs 995.2 bn as on November 30, 2000.

 Large-scale redemptions during December 2000 amounted to Rs 78.3 bn. The performance of the Sensex (see chart) over the month more than explains the reason behind investors exiting in hordes.

As in stocks, investors in mutual funds are taking a very short view of the markets. Even a slight dip in the markets is sufficient reason for them to exit from a growth fund. This defeats the very purpose of investing in an instrument like a mutual fund, which is only for the long term investor. Investors who take a monthly/quarterly view on their mutual fund investments (like growth, income, balanced) have certainly not understood the philosophy behind investing in a mutual fund. With such a short view they might just as well invest in stocks!

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