Market is jittery so what the Mutual Fund investors should
be doing ?
Last some days Indian stock
market seeing some big downside followed by some small upside and then game of
upside , downside continuing . Reasons are Chinese and US market impacts about which
we can do nothing . What will be happening is days to come , how long we will
see the volatility , Is there more fall expected in market levels etc , these
questions must be coming in the mind of Indian Mutual Fund investors . Experts
have been airing their opinion . I have always held a view that these opinion
on market levels in short to mid term are very difficult to predict . My
observation has also been that looking at last very few days trend and news
these experts air their view . How far they prove to be correct on continuous
basis is again something which has not been always proved with full accuracy .
My concern is not about market levels or experts prediction but what’s going in
the mind of Mutual Fund investors and what their mindset should be .
Firstly when we say Equity MF is
a long term investment i.e must have a minimum investment horizon of 3 years
plus or 5 years plus ( for those who are more conservative ) it means that the
short term volatility risk is well covered in this minimum time period . There
are two type of transaction happens – first you invest i.e buy units of the
equity mf scheme selected and after more than 3/5 years you redeem i.e encash your
units purchased .
One mistake which most investors
do is when they buy they look at market level or at least influenced by the
rising market level and when they sell either it is due to need or to book
profit or may to save the loss if market falling . Investment in Equity MF
looking at market level is the wrong approach .
I will give you an example of
onion which had caught the attention of whole India due to rising price.
Suppose onion is priced Rs 6 per kg or Rs 60 per Kg or Rs 200 per kg . Does
this changes the quality of onion or the taste of onion ? Definitely not . I
might be buying less or more due to price but quality or taste is independent
of it . Price is affecting my buying behaviour . The benefit in terms of taste that the
product gives is independent of the price. Lets assume in above example that
price is reducing ,then will you buy less or more onions ?
When you are investing in MF again
market level or NAV is something which can affect you psychologically but you
must understand that you are investing for the coming benefits i.e the growing
earnings of the companies where fund manager has invested on your behalf . It
will never happen that companies are growing in terms of earning and its market
price will not grow . So in long term with rise in valuation of companies stocks which are in portfolio , NAV will grow and
so will grow your return. Generally most of the money invested by fund manager
is with mid to long term view and some / few with short term view where he
wants to take advantage of price/market volatility . What should affect you is
the quality of portfolio or earning ( profit after tax ) generation capability
of the companies . If that is what getting affected then yes there is a point
to worry . If the earnings of the company is externally determined rather than
internal ( domestic ) demand then yes some area of concern as investor . But
even in the worst of recession situation ( 2008-09 ) we did not see any
downswing in consumption patterns in India . When our economy is consumption
led economy then the industries /companies catering to local demand will be
less affected .
Indian investors who are
investing in equity MF schemes should not worry about market levels as that reflects
the instant buying and selling behaviour of the market participant which is in
no way related to the earnings of companies . Ultimately as MF investors you
will gain till earnings keep growing so be calm and stay invested . Don’t get
affected by short term views of experts . It is more for day traders in equity and
not for long term equity mutual fund investors .
