The Hindu Business Line : It's now time for stock-taking

MOST investors in mutual funds, especially those who dabble in equity schemes, want to have their cake and eat it too. At one hand, they want good-to-great returns and at the other, demand complete stability and consistency.

To those who do not know it already, let us just say that getting the best of both worlds is not quite easy. In many ways, it is difficult to achieve, and only the lucky ones manage to get it consistently or at very frequent intervals.

Book profits: The reason why we broach this subject stems from NAVs of equity funds, which have kept pace with the rising markets. With the indices at levels that were never witnessed before, life has indeed been a bed of roses for even the average investor. But, for all you know, this may change for the worse dramatically - and the pace of change may hurt you badly. Some quarters, including influential sections within the asset management industry, are of the view that investors should now consider booking profits actively, at least to a moderate extent.

In fact, a few are seriously encouraging them to do this at the earliest. The rationale is simple: make hay while the sun shines, the opportunity you have today may not be there tomorrow.

This, of course, certainly does not imply that investors should move out altogether from well-performing equity funds. Why should they? Not when chances of a further upside are there.

A better strategy, as sources point out, may involve a phased withdrawal, leading to perhaps a gradual scale-down in exposure. Naturally, there is no `one-size-fits-all' principle that may be applied here. What is good and apt for one investor, may not be the same for another.

Investment advisors must therefore customise even partial exit strategies in line with requirements of individual clients.

Asset allocation to drive market: While a number of positive factors are crying for attention, MF investors may well remember that our equity markets are getting more fairly valued. In the days ahead, improved performance will depend on the kind of asset allocation strategy they follow.

The more confident among us will probably reiterate that Indian stocks have largely gained from the strong appetite displayed by investors, both international and domestic.

Positives vs Risk: It will be argued that the positives (ranging from large forex reserves to outsourcing opportunities for Indian companies to the country's demographic profile) are too many to ignore. The trend, it will also be pointed out, will remain unchanged in future.

Lay investors, however, need to keep in mind the possible risks - escalating oil prices, rising inflation, unstable interest rates, slowdown in FII flows and the like.

As December draws to a close, the diligent investor will sit down to do his year-end maths - to ascertain how much he has gained and lost during the course of the year. Most people, especially the ones who have stayed invested in the right funds, will probably end the year on a very happy note. There will be lots of smiling faces, but there will be a great deal of disappointment too.

There will inevitably be a set of people who have made mistakes, which, on hindsight, have become too costly.

It may make sense to work out a comprehensive list of gainers and losers; we will attend to it in another column, probably in the next one. Till then, wait.

Fundspeak

The key to superior performance would continue to be based upon in-depth fundamental research and stock picking abilities. Investors would be well advised to commit long-term funds to equities.

Birla Mutual Fund

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

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