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Home > Business > Business Headline > Personal Finance

Don't time your mutual fund investments | June 09, 2007 13:52 IST
Last Updated: June 09, 2007 14:55 IST

How often have you heard the phrase 'timing the market' in the context of investing in the stock markets? A lot of individuals, who are looking at investing in stock markets, time their entry (i.e. buy shares) or exit (i.e. sell shares), depending on the market movements.

Ideally, one should enter the market when it is at lower levels and exit when it is at higher levels. But, the same is possible only if one can predict which way the stock market is going to move. The fact is that it is almost impossible for anyone to predict consistently how stock markets are going to move on a particular day.

Nonetheless, this does not stop individuals from timing the market on the basis of some news or tips provided by brokers/friends/relatives or such other 'informed' sources.

Tips and news can be the resort for the short-term investor. For serious investors, who are investing for a longer duration (3-5 years) for a broader financial planning objective (like planning for child's education, retirement planning), this should be of no relevance.

Unfortunately, there are many long-term investors, who before investing in equity funds wait for the markets to decline so as to invest at lower levels.

At Personalfn, our recommendation to investors is that they invest regularly for the purpose of meeting some of the aforementioned investment objectives. An effective and hassle-free way to do this is through the SIP (systematic investment plan) route.

With SIPs, you do not have to worry about market timing as regardless of market levels, you are investing a fixed amount at regular intervals (like a month or quarter, for instance). If markets correct, you can invest an additional sum to get a better average.

The idea is to invest regularly and not wait for a decline in stock markets. If investors had been waiting for a decline in the last 4 years, they would have been waiting on the sidelines for most of the time, because of the strong secular run up in markets over this time frame.

After a good showing over the last few weeks, this week saw stock markets slide in negative terrain. The BSE Sensex shed 3.48% during the week to close at 14,064 points, while the S&P CNX Nifty ended at 4,145 points (down by 3.54%). The CNX Midcap fell by 1.71% and closed at 5,591 points.

Leading open-ended equity funds
Equity FundsNAV (Rs)1-Wk1-Mth6-Mth1-YrSDSR
Kotak Tech 10.701.45%2.79%5.13%57.66%6.92%0.30%
Franklin Infotech 52.110.98%0.78%-1.68%53.31%7.18%0.30%
UTI Software 28.090.68%2.59%6.64%72.23%7.94%0.36%
Magnum IT29.350.07%3.49%15.64%86.59%8.51%0.44%
Birla New Millenium 21.98-0.09%3.92%18.81%81.50%7.60%0.41%
(Source: Credence Analytics. NAV data as on June 8, 2007.)
(The Sharpe Ratio is a measure of the returns offered by the fund vis-�-vis those offered by a risk-free instrument) (Standard deviation highlights the element of risk associated with the fund.)

Technology/software funds bucked the trend and closed in positive territory. Kotak Tech (1.45%) led the pack, followed by Franklin Infotech (0.98%) and UTI Software (0.68%).

Leading open-ended long-term debt funds
Debt FundsNAV (Rs)1-Wk1-Mth6-Mth1-YrSDSR
BOB Income12.911.16%1.35%3.35%5.36%0.23%-0.85%
LIC [Get Quote] Bond 20.500.83%1.71%2.41%5.96%0.44%-0.22%
Grindlays Dynamic Bond 13.840.47%1.23%3.46%8.15%0.36%-0.13%
HSBC Income IP 12.510.28%0.82%1.49%5.05%0.34%-0.56%
Grindlays Super Saver17.130.27%0.96%2.15%5.94%0.36%-0.53%
(Source: Credence Analytics. NAV data as on June 8, 2007.)

BOB Income (1.16%) surfaced as the top performer in the long-term debt funds segment. LIC Bond (0.83%) and Grindlays Dynamic Bond (0.47%) came in at second and third positions respectively. Another fund from Standard Chartered Mutual Fund, Grindlays Super Saver (0.27%), also featured in the top performers' list.

Leading open-ended balanced funds
Balanced FundsNAV (Rs)1-Wk1-Mth6-Mth1-YrSDSR
HDFC [Get Quote] Prudence 120.29-1.20%4.50%9.13%48.21%5.07%0.44%
Canbalance 28.73-1.47%2.94%3.61%25.73%5.46%0.19%
Tata Balanced53.57-1.65%3.49%11.90%45.73%6.36%0.33%
UTI Variable Invest ILP 16.67-1.72%1.25%4.51%15.20%2.65%0.25%
HDFC Balance 31.44-1.76%2.19%-0.70%28.35%5.50%0.26%
(Source: Credence Analytics. NAV data as on June 8, 2007.)

The slump in the equity markets reflected in the performance of balanced funds, as funds across the board closed the week in negative terrain. HDFC Prudence (-1.20%) fell the least, followed by Canbalance (-1.47%) and Tata Balanced (-1.65%).

Regardless of stock market levels, we urge investors to focus on their investment objectives, rather than concentrating on stock market ups and downs.

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