The Hindu Business Line : Mind you, entries and exits do have a price

HOW did you feel when the market ended last week with serious losses, closing with Friday's steep decline? You have reason to worry. Net asset values of equity funds are coming down drastically and investors are scared that they may drop even further. The trend, if it continues, may well prompt investors to hold back fresh allocations and even trim their existing holdings to more manageable levels.

Experts will probably advise you to remain invested for the time being before extreme measures - like a major pullout - are considered. The idea is to stay on course and wait for a clear trend to emerge. After all, there has to be more than a simplistic reason for an investor to re-align his portfolio or fine-tune his asset allocation.

A mere fall in NAVs, seen in isolation, need not be the only reason to trigger large-scale redemption. In fact, if you are actually doing any re-alignment, you must remember that entries and exits will come at a price.

And, finally, doubters may also like to check out the famous words of John Templeton, who said that "the time of maximum pessimism is the best time to buy and the time of maximum optimism is the best time to sell". An ingenious statement, that.

Elsewhere in the MF sector, asset management companies remain interested in introducing new products. On the equity side, new proposals have been worked out by the likes of Birla, DSP Merrill Lynch and Chola, while Deutsche and Standard Chartered are keen on bringing out new fixed maturity plans.

The market, incidentally, is waiting to see how much Fidelity will collect. The final mobilisation figure will be known in a few days.

On another front, distributors in India may draw encouragement from the findings of a recent survey that highlight the significance of professional financial advisors in the US market. The vast majority of people who own mutual funds outside defined contribution retirement plans go through professionals, the survey points out, adding that fund ownership through such advisors is predominant across all shareholder classifications, including age, education, length of ownership and size of holdings.

For instance, 83 per cent of individuals 34 years of age or younger (who own MFs outside retirement plans) hold their funds either solely or partially through professionals.

At the end, let us refer to a handy Q&A prepared by SEBI to inform the public about mutual funds. As the regulator has pointed out, funds (like all investments) carry certain risks and investors should compare these risks and expected yields after adjusting for taxes. Advice from consultants, including distributors, may be sought.

The Q&A, now available on the SEBI Web site, ranges from the simple "What is NAV?' to the practical "How to fill up an application form?". Besides, there are answers to questions like "When will the investor get certificate or statement of account after investing in a mutual fund?"

For those who are not quite sure, MFs are required to send certificates within six weeks from the date of closure of an initial subscription.

In case of close-ended schemes, investors would get either demat account statements or unit certificates. As for open-ended schemes, a statement of account is issued within 30 days from the date of closure of IPO.

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

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