This story is from March 15, 2008

MF investors feel the pinch now

Sherna D'Mello / TNN / Mar 15, 2008, 00:00 IST

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When the markets started to fluctuate most mutual fund investors were relieved that experts were handling their money.

MUMBAI: When the markets started to fluctuate most mutual fund investors were relieved that experts were handling their money. They were not subjected to the daily pain direct stock market investors had to go through while the market started to drop from January 10. But as the markets continue to slide with no end in sight, particularly this month, these investors are now uneasy.
Many find their net worth has dropped significantly over the last three weeks and many now wonder what strategy they should adopt in this situation. Should they go for a diversified fund, or sector-specific one? Mid-cap, or index funds? Do the same rules apply now that the markets are in a free fall?
"I think all investors should step back, take a deep breath and examine their financial goals. If he is interested in a long-term investment and is willing to stay put for at least a year, then he should put his money into a diversified equity fund,'' said Ved Prakash Chaturvedi, MD, Tata Mutual Fund. ''There will be lots of volatility over the next year and so investing with a short-term view is dicey," Chaturvedi added.
Experts also say that this is not the time to get into sectoral or thematic funds, given the current global scenario. "Diversified equity funds are your best bets since there is uncertainty across the globe. There is bound to be a rotation of sectors that will emerge as market leaders,'' said Gopal Agrawal, Fund Manager - Equity, Mirae Asset Management. ''A diversified fund allows the fund manager to move investments between these sectors, boosting profits," said Agrawal.

But what about index-traded funds? These funds invest in all the stocks in a particular index with the same weightage that they hold in that index. So they mirror the performance of the index. In addition they have no entry and exit loads, which means more of your money is invested in the markets. During the recent slide, these index funds have performed marginally better than mid-cap funds. So is this a better investment route?
Experts disagree. "Index funds are passively managed funds, which will not work now. A fund manager adopts a bottom up approach to stock picking which is essential in current scenario to make money," Agrawal said.
Chaturvedi says, actively managed funds outperform index funds over the long-term by a large margin. ''They may be performing slightly better in the current situation, but the same does not always hold true," he said.

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