Markets have been behaving a mite too irrationally for investors good. This has had a dampening effect on mutual funds leaving the investors very confused.

After Yashwant Sinha's sops for the software and telecom sectors last week, markets recovered dramatically over the next couple of days giving investors the impression that the worst was behind them. However, the mindlessness and senselessness that the markets have displayed in this week has nullified all the gains of the previous week.

Fund managers are equally distressed to see the markets showing so much volatility. This has had a significant impact on their buying and selling decisions. To compound matters investors are exiting funds in hordes adding to the redemption pressure. It should come as no surprise if some mutual funds are facing a payment crisis. Mutual funds are allowed to borrow cash as a percentage of their net assets. With the illliquidity in some stocks (particularly software) cash-starved fund managers have resorted to borrowings to meet redemptions.

So how does the market see-saw impact the mutual fund investor? There is simply no trend for the investors based on which they can take decisions. However given the hammering TMT (technology, media, telecom) stocks have got (in the local and US markets), its advisable to keep away from tech funds and other growth funds with large exposure to TMT sectors.

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