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Nilanjan Dey

LIFE at present is not quite easy for the average investor in equity funds. The stock markets have been extremely choppy in recent days. Net asset values of equity funds have been bobbing up and down, adding to the general discomfort of the ordinary man who has chosen to put his money in mutual funds.

The volatile situation has led some sections, especially those who do not wish to stay put for long, to pull out and switch over to other forms of investment. Some of the others who are not so desperate have probably booked profits in small measures and retained only their core holdings.

Exiting from the schemes one has invested in (with a lot of hope) is never an easy task. Oh, it just takes a signature to get out but there should be more to that than just a stroke of pen. Liquidation, as many pundits suggest, should actually be an essential part of one's active investment strategy.

Exit from a fund may be considered in some situations, subject to certain developments. Most important of these perhaps is the need to re-balance one's holdings. Achievement of the price target is also a critical factor here. Further, an investor may dump a fund if it is doing poorly in terms of returns.

Let's tune in at this stage to a smart quip used by Mr Sundar Sankaran, head of consultancy firm Advantage-India, who has recently worked out a tome on funds. "The old idea that you could just invest your money in a mutual fund, do a Sleeping Beauty imitation, and then wake up rich is more myth than reality. When a change needs to be made, do so decisively. After all, selling a mutual fund is not like getting a divorce". The advice could not have been more sensible.

There could be a few other reasons why an investor may wish to exit — even when price targets are not met and there is no need to re-balance. And such desire can take firm shape when there are serious indications that a fund is being run the wrong way. People-related changes — think of a scenario that arises when a favourite fund manager quits and joins another outfit — could also lead to a pull-out.

An exit strategy is in a way an offshoot of a proper financial plan, one that takes into account the requirement of finances in future and is based on factors such as current and expected income, age, return expectation etc. A good financial plan, according to Mr Sankaran, helps dreams come true. "It provides the investor a cockpit view of her entire financial landscape", he notes, adding the alternative to financial planning is goal-oriented investing. In a goal-oriented process, each dream is viewed in isolation - a concept that is not without flaws.

Earnings that are expected to materialise in future are an essential consideration. These could come by way of dividends from existing holdings. A professional may well see a growth in income in a stepped manner - a spurt with every promotion. A non-professional may see a more secular trend. A financial planner should work closely with the investor, walk him through the entire path of "dreams, risk profiling, asset allocation and adequacy of funds". The process of choosing the best options is a function of profile and cash flow needs, it is felt.

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Exiting from funds never an easy task

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