The Hindu Business Line : Partial exit from diversified equity fund may be wise

Many funds have performed reasonably well in the past 10 months or so, a scenario that may prompt a quick back-of-the-envelop calculation at your end. Do you smell the sweet aroma of money? In case you do, a partial exit may be considered necessary.

In fact, given the state of the equity markets, a limited pull-out may also be contemplated actively.

Talk to the funds and they will take you back to the days when the broad market fell from its level of 6,000 points in February this year. They will also invariably refer to the famous Black Monday (May 17), which saw the Sensex dip significantly to somewhere above 4,200 points. Between then and now, there have been major changes.

Having gone through these changes, you will have to ask yourself a few simple questions somewhere along the road that lies ahead of you. Will equity funds be any good from here on? Can the fund managers better their own records? Will past performance be an indicator of future trends?

The third poser actually turns me to a quote - a bit long-winded but it is interesting all the same - that I picked up from a book review.

Here goes: "One of the hardest questions to answer is, what makes a good portfolio manager? The simplest answer lies in the performance numbers, but how do you get the performance numbers? You have to come up with a methodology and a time period to look at and then answer an even harder question: Does past performance predict future results? The answer is unequivocally no.

"The reason is simple: No two markets are ever the same. History, for the most part, does not repeat itself, so the idea that you can look at something that has already happened to see what is going to happen tomorrow is absolutely ludicrous. Skill sets, not systems, are what allow one money manager to perform better than the next over time".

Fund managers admit that detecting the winning scrips will be an uphill task from here on. At any rate, even the best of them cannot do it equally successfully on all occasions. In fact, as some of them point out, they will have to be extremely lucky in order to score superlatively in a consistent manner. But all of them must remember that investors' fortunes will depend on how efficiently they conduct the stock-picking business.

Meanwhile, it looks that there will be a good number of new launches in the coming days. Among these are IPOs worked out by fund houses such as Templeton, Reliance and Cholamandalam.

Tata MF has introduced an infrastructure fund, while debt fund watchers will be aware of a 2.5-year fixed maturity plan from Standard Chartered MF.

A few dividends have been lined up as well. These include payouts by the likes of Chola Growth, HDFC Top 200 and HDFC Growth.

However, those willing to hold on to their investments for one year or more may seriously look at growth options.

Feedback may be sent to nilanjan@thehindu.co.in

More Stories on : Mutual Funds | Fund Watch

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
The importance of asset allocation

Moving into uncharted area from here on

Partial exit from diversified equity fund may be wise

Indian counters make merry

Sensex to jump or slump: It's anybody's guess!

`Debt funds will stage a come-back '

JRG Sec's UIN programme

Dena Bank targets 100 pc growth in retail portfolio