Sanjay posted the following comment a few days ago, and I’ll try to pen down some thoughts that I have on this.
Sanjay January 17, 2013 at 1:26 pm [edit]
Is this the right time to enter or exit Mutual Funds?
Given that the market is at a two-year high, what should be one’s approach to Mutual Funds?
My situation: I have been investing in the HDFC Top 200 Fund (monthly SIP) since 2010. The investment was done with a view to hedge against inflation and build a retirement fund (retirement is more than a decade away). HDFC Top 200 is currently showing a net gain of 15.22% for me. Should I continue investing in the fund given that the market is at a 2 year high or suspend investing (but not sell/redeem my existing units) till such time the market falls again?
Can you explain how should one treat mutual funds? Are we supposed to keep investing them till such time we want to (in my case retirement) or are we supposed to sell/redeem when the gains are good (example lets say 30%) and then re-purchase when the market falls?
Thanks
The Nifty P/E is currently 19 which is not crazy high and if you have just made 15% on your portfolio, I don’t see a good reason to sell and lock in your gains because they aren’t very substantial gains to begin with.
However, this may not be a good time to begin fresh investments and in my own case I have sold some stocks in which there were sizable gains and am waiting for the next time of crisis to really step up investment.
If you have just ten years left for your retirement then I would say this is not the time to get aggressive, and it is much better for you to be conservative with your investing, and invest only a small part of your money in equities anyway which can be quite volatile, and if you want to increase that investment it should be during times of panic and crisis and not times such as these when everyone is excited about the markets, so conserve cash now and deploy it later when there is panic.
well, I have been investing in funds for over 5 yrs now. I use fund performance data from moneycontrol and use my own filters to select funds – including inspecting current asset allocation, fund expense ratio, AUM and fund manager track record.
I feel there are 3 options that one can look at when wanting to rebalance :
1. If a good performing fund, switch the gain into a debt fund
2. If there are better performing equity funds, switch the gain into that equity fund. Over time, switch the entire amount to that fund
3. Redeem cash only if you have another asset / need in mind – like if you want your portfolio equity component to not exceed say 40%
True that frequent transactions are not easy to perform and track. However with most fund houses offering online channels to undertake these, a couple of hours each month on a Sunday afternoon should take care of your financial health !
well, I have been investing in funds for over 5 yrs now. I use fund performance data from moneycontrol and use my own filters to select funds – including inspecting current asset allocation, fund expense ratio, AUM and fund manager track record.
I feel there are 3 options that one can look at when wanting to rebalance :
1. If a good performing fund, switch the gain into a debt fund
2. If there are better performing equity funds, switch the gain into that equity fund. Over time, switch the entire amount to that fund
3. Redeem cash only if you have another asset / need in mind – like if you want your portfolio e
True that frequent transactions are not easy to perform and track. However with most fund houses offering online channels to undertake these, a couple of hours each month on a Sunday afternoon should take care of your financial health !
Thanks Siddhant..I think, your suggestion makes sense reg realizing ‘notional’ profits, and reinvesting if you are so sure of the MF/share..
As rightly point out by Manshu,its quite difficult call to invest or not at this stage.As market is technically strong but fundamentally still weak.
Even if investor booked profit he should continue to invest independent of the highs or lows.
Finally Its individual decision whether to walk out or not.But even if any investor decided to walk out from mutual funds, he should take enough care that this asset should not get locked at other places , especially illiquid assets like Real Estate or physical Gold.
Switching out to debt / Liquid funds is good option at such point.You can also refer to this article:
http://www.saving-ideas.com/2012/12/why-you-should-prefer-to-switch-out-mutual-fund-units-to-liquid-fund-rather-redemption/
Manshu
As a long time investor in stocks can you please advise how do you pick up stocks. Methodology and any sites you use.Would love to learn something on same.
Thanks
I don’t do anything really fancy Harinee – I will try to pen down some thoughts but it might just disappoint you since it is so simple.
thanks manshu… for accepting request. Your thoughts are really clear and served good guidance. Now also pen down your thoughts for what Harineem has asked … your clarity and simplicity of thoughts had never ever disappointed any body.
Thanks Kartavi – I’ll have a post on it soon.
Our psyche is such that we do not waste much time in deciding to invest in a mutual fund when an attractive opportunity comes by…but the same doesnt happen with the redemption part ! . I feel this because if the fund is doing well, we tend to hold on hoping for further gains, and if it is at a loss, we still hold on to it, hoping to recover at least the principal .
While there is no rule book which tells you when to exit, If you have reached the target profit you had mentally for yourself investing, or if the mutual fund is trading below par for quite sometime and there are other MFs who better performers in the same category, it is the right time to exit.
Harder said than done I guess, like most other things in investing. And then how do you even set up a target? With stocks you can still think of some targets based on the earnings etc. but with MFs that is a bit harder.
Siddhant,
Regarding your suggestion of exiting MFs, and even reinvesting in same funds same day, does it apply to MFs in profit too? I don’t have much clarity reg DTC bt appreciate if you can elaborate, how does DTC intend to treat MF investments, which is forcing you to suggest this rather dramatic measure?
Harsh,
I think there is a significant possibility that the Long term tax gains could come under taxation as per the DTC.
And my suggestion of exiting is for all funds in profit if they are more than 1 year old, as of today, becuase today we know the Profits are Taxfree which may not be the case after march, but off course this is my personal opinion,
The question is more about transferring the profit that you see on the portfolio in cash from time to time.which must be done periodically. same rules apply to Shares , some of my friends have ESOPs alloted where they are sitting on huge profits, my recommendation to them has been get the profit on table & if you still beleive in the stock reinvest the amount. but in case of shares the issue of brokerage charge needs to be considered.
What say manshu…
Good question quite a tough one to decide.I actually redeemed 50% of one but then I had 100% returns in it rest I have actually increased investment especially sector-based.
The one that I sold off had a good profit also and I feel that it is better to book profits in such situations.
Manshu,
I have a bit of different perspective,
Considering that Chidambaram is now the FM you can expect fleecing of income tax payers in fanciful ways,
My recommendation for 2013 is to get all the money on table, that is sell out all the mutual funds if they are more than 1 year old, get the profit as tax free, since it is long term cap gain & then take call for investing. You may even invest the same again in Mutual funds the same day , but get it on table.
I think this will be a very wise thing especially looking at the fiscal situation that india is in currently & implementation of Direct tax code a significant possibility.
I don’t know man, I don’t think Chidambaram is any worse or better than any before him. I am not too sure him being in that seat will influence my decision at all.
Hi manshu..
I have one similar query
I have hired financial planner since 2011..and started sip since then..
But i have some old mis sold mutual funds and ulips..
Some of them are still in loss… so should i wait for some more time or sell them just now ?
Hard to say without knowing the details Rohan, why don’t you ask your advisor, that’s what he is there for. I’m sure he will have some useful info on it.