Sensex down 700 points. Time to sell your MFs?

Many mutual fund investors, especially the new ones, are a worried lot. All the talk about a rate tightening cycle globally, predictions about a market crash, among other things are adding to their concerns. Many of these investors are wondering whether they should sell their equity investments and look to enter the market once things stabilize a bit in the market.

Mutual fund advisors say these investors are influenced by all the talk about various adverse factors that may hit the market in the coming days. They say most of these investors probably started listening to such conversations for the first time and they are clearly influenced. Advisors say many investors go through the phase and it takes a while for them to put things in perspective.

Some advisors say many investors are worried about what will happen to their profits they have made in the recent past. Many investors believe taking profits and investing it back in the market when everything looks positive is the sure shot way to maximise profits. The only problem: the market still seems to have some gas left. Will it be prudent to leave the market now? What if it again scales new highs?

If you are in the same boat, you may learn a few things about the market or equity investing in equity, say mutual fund advisors. They say this notion of protecting profits by stepping away from the market and getting back again when another bull run is around the corner is not practical. This is the same ‘timing the market’ or ‘buy low, sell high’ strategy.. Except for some greenhorns nobody believes that this strategy is easy to implement and make money in the market.

For example, some investors sold their investments and booked their profits when they heard about the unprecedented global shut down after COVID virus spread all over the world. What happened in the market? Sure, the market fell soon after the news of the virus threat. However, the market started going up immediately afterwards. Before many bearish investors could react it scaled new highs. Do you think all those smart investors who were sitting on cash managed to get back to the market immediately?

Don’t you think some of them would have waited for some more good news on the virus? Some investors would have waited for some more time to see whether the market indeed would stabilise before stepping into the market. That is the trouble with timing the market. Your emotions would start dictating terms to you. That is why many experts advocate boring SIP to invest for a long period.

Sure, a market fall would eat up some of your profits. But don’t worry about it too much. Remember, you have estimated an average annual return of only 12% in your calculations. Equity mutual fund returns are not linear. You can’t expect predictable returns year after year. You might get supernormal returns one year, and negative returns the year after that. That is how the returns average out over a long period.

(Catch all the latest news about mutual funds, MF insights & analysis, best buys and investment trends on ETMutualFunds.com)

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