Mutual Funds Investment Tips:The huge turmoil in the stock market in recent times has negatively impacted the performance of many mutual funds, especially sectoral and thematic funds. The returns of most sectoral and thematic funds in the last 3 months are currently very low or negative. Their return figures for the last 6 months are also almost the same. recentlyThere are many sectoral and thematic funds launched whose net asset value (NAV) has fallen by 10-20% from their launch price. Due to this, many investors who have invested money in NFOs of sectoral and thematic funds or have recently invested in such old funds are facing losses on their investments. The question is, what should such investors do now?
More impact on sectoral, thematic fundsWhy,
Sectoral and thematic funds, such as defence, PSU, tourism and equity funds following metal indices, have been victims of the recent turmoil in the stock market. There are many funds whose NAV has fallen below the price of Rs 10 per unit issued in the New Fund Offer (NFO). Heavy selling by foreign institutional investors (FIIs) after September 27 worsened the situation. During this period, a decline of 10.44% was seen in Nifty 50, 10.9% in Nifty Midcap 150 and 9.1% in Nifty Smallcap 250. Apart from this, a decline of 10.25% has been recorded in Defense Index, 11.7% in PSU Index and 12.28% in Metal Index.
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Investment loss at wrong time?
Many thematic and sectoral funds were launched at a time when the respective sectors were already touching their peaks. For example, the defense and PSU sectors had given more than 100% returns in the year before launch. Due to this performance, these schemes attracted new investors, but the sharp decline in the market also caused a huge decline in their value. The structure of these funds is based on some selected companies. If the performance of 1-2 of these companies is weak, it has a negative impact on the entire fund.
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What is the right strategy for investors?
Investors should review their portfolio at this time. Investors who have invested too much in thematic funds can exit them and move to diversified equity funds. Experts believe that diversified funds perform better in the long run as they invest in different sectors, which helps in reducing risk.Thematic and sectoral funds are suitable only for experienced investors who have good knowledge about the respective sector and can afford to take higher risks on long-term investments. New or less knowledgeable investors should avoid these and focus on diversified schemes only.
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Why is it important to book profits on returns?
The biggest challenge with thematic and sectoral funds is to exit at the right time. If one does not exit the fund at the right time, the investment may remain stuck without profit for a long time. For example, there was huge investment in the power and infrastructure sectors in 2008, but investors who did not exit in time had to wait for about 8-10 years to recover their funds.
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What should investors learn?
Thematic and sectoral funds should never form the core of your portfolio. Give limited space to such funds in your portfolio and give priority to investing in diversified funds. A maximum of 10% should be invested in sectoral and thematic funds. That too for those investors who have the ability to take more risk and can invest for at least 7 years. In the current market situation, investors need to be cautious. Whenever such funds perform well, it is important to book profits and rebalance your portfolio. If you want to create wealth by investing in equity for a long period, then diversified funds like multi cap and flexi cap are better. However, before taking any decision related to investment, always remember that no matter the equity mutual fund, there is always some market risk associated with investing in it. Therefore, invest money only keeping your risk profile in mind.
