UP or DOWN What's Your Strategy?

When investing in a fund, should you park your money in a category that has been sailing high or should you be an opportunist and take a stake in one that has been underperforming by a huge count? This article highlights the salient aspects of both such practices and provides some useful tips

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The market is currently witnessing one of the worst volatilities in more than a decade. The Sensex is swinging by 1,000 points effortlessly on a daily basis. And the direction seems to be downhill as of now. This has adversely impacted the net asset value (NAV) of equity mutual fund schemes, which are down in double-digits for the year till date March 16, 2020. International, energy and banking-dedicated equity funds are the worst hit. The best performing categories are also in the red. Pharmaceutical and thematic MNC funds that have fallen down by 4.74 per cent and 13.88 per cent respectively in the same period.

There are some funds among the international lot that have lost almost one-third of their value year-till-date (YTD). As such, many of us who thought they had missed the bus earlier might be thinking of getting on to it. Many opportunist investors may be weighing their options. The question is: should you buy funds that have slipped the most? Now that the NAV of the funds have seen such a sharp fall, does it make sense to invest in a fund that has nose-dived? Investors in general are not good at timing. Many of them ‘buy high and sell low’ against the cardinal principal of investing that says ‘sell high and buy low’.

To get an answer to the above question of whether it makes sense to invest in worst performing funds, we carried out a study of funds for the past 12 years. The study was conducted at two levels: first at the category level and second at the fund level. It has been seen that there is always a change in the category of winners and losers.