Stay Put in MFs

Business Today|August 09, 2020

Stay Put in MFs
DO NOT GET OVERWHELMED BY THE SMART RECOVERY AND BOOK PROFITS. THE UPTREND IS LIKELY TO COUNTINUE
APRAJITA SHARMA

The stock market is on a roll again after falling steeply in March due to spread of coronavirus and the resulting lockdown. The benchmark Nifty has risen 43 per cent since March 24, when it had hit 7,511 (it closed at 10,768 on July 10). Equity mutual fund investors, whose portfolio had crashed 30-40 per cent, have a reason to rejoice.

Not just largecaps, even midcap and smallcap funds have risen up to 35 per cent since March 24, a signal that the recovery is broad-based. Most sectoral indices are also up significantly. Even the worst-performing theme – PSU – is up 27 per cent.

Is the worst behind us? Not necessarily. Coronavirus cases are still rising. While the slowdown in the June quarter is a given, there may be negative surprises in the September quarter too. Most importantly, the recent rally has attracted a new breed of stock traders cooped up at home and trying to make a quick buck. A single negative trigger is all it will take for another downward spiral.

Whatever the situation months down the line, this is a good time to take stock of your MF portfolio and answer a key question — should you book profits, if any, or wait for a more opportune time? It is a tough call, but experts say that broadly, your MF strategy should be long term and not depend on your ability to predict and time the market. It is a different matter if you need funds for an important life goal, though.

Post-Covid Recovery

Smallcap and midcap funds have widely underperformed large-cap funds for a couple of years now. However, the recent recovery has been broad-based with large-cap, large midcap, multi cap and even midcap and smallcap funds rallying 33-35 per cent. However, this doesn’t mean that all midcap and smallcap stocks are up. “Although small & midcap indices have seen a significant move, dispersion in returns across stocks is significant. For instance, a few stocks have fallen 25-30 per cent during this period, while several small-caps have risen 2x or more,” says Kaustubh Belapurkar, Director – Fund Research, Morningstar India.

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August 09, 2020