The Hindu Business Line : Booking profits may be a wise thing

Money was never a big motivation for me, except as a way to keep score. The real excitement is playing the game - Donald Trump (`Trump: Art of the Deal')

IS the rising stock market tempting you to invest more in your favourite funds, once again with the hope of making a killing in the short term? If the answer is in the affirmative, you must be one of those die-hard enthusiasts forever trying to make money regardless of the surging market.

Before you make fresh commitments, you may well take a close look at the realities of the day.

Yes, NAVs are up and many equity funds have fetched you good returns in recent days. And, no, things may not be as bright as this some time from now. The point, in other words, is simple - take out your profits while you can, well before the next major correction comes.

There is no denying that quite a number of equity fund managers have done a smart thing or two during 2004. Some of them have paid regular dividends too. Considering everything, investors may not have much to complain about, especially if they had been brave enough to have picked up pharma funds in the early stages.

All said and done, it will not be right to view this phase as an everlasting honeymoon. What goes up (as the popular saying goes) will indeed come down whether you like it or not. So, be prepared.

Turning to other developments in the realm of asset management, HDFC MF's proposal to rename Tax Plan 2000 as Long Term Advantage Fund certainly merits mention. Tax savers (Equity Linked Savings Schemes or ELSSs from the point of view of Section 88 of the IT Act) are arguably the most neglected options ever.

Fund houses have not promoted ELSSs seriously and investors have not bothered to try them in sufficient numbers. But some of the tax-saving options have done reasonably well. What probably goes in their favour is the automatic three-year lock-in. Put in your Rs 10,000 and stay put for at least three years. That may prove to be a smart thing at the end of that period.

As December comes to an end, investors will need to take stock of the situation and find whether fund managers have created real wealth for them. Investors who are keen on IPOs may see a number of new launches in the new year.

The report card for 2004 will have to be studied very diligently with the hope of drawing lessons and learning from mistakes.

In other parts of the world, such report cards are just out too. Morningstar of the US has listed the funds that have destroyed the most value. Their names may be a bit alien for investors in India but they are a revelation all the same.

At the top of the heap is Fidelity Select Electronics, which has wiped out an amazing $526 million of investors' money. This fund, Morningstar has noted, "invests primarily in semiconductor stocks - which have gotten crunched this year".

One more reason why you should tread carefully when it comes to investing in sector funds!

Very seldom do all asset classes perform at the same time... we believe investing in mid-caps is an extension of an asset allocation, which all investors should practice

Sundaram MF

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

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