Is it time to move out of equity mutual funds?
DSIJ IntelligenceCategories: MF Unlocked, Mutual Fund
Equity markets are trading in red, but does this have an impact on equity mutual funds which invests more than 65 per cent of their assets in equities. So, is it the time to move out of equity mutual fund? Let’s find out.
There are various reasons why you may wish to get out of equity mutual funds. You might dislike them because the equity mutual fund you have invested in is not doing well when compared to its peers, etc. However, since the last two months, BSE Sensex has fallen almost by 7.82 per cent from its all-time high of 40,267. This may have led many investors to move out of equity mutual funds. If we look at the AMFI’s (Association of Mutual Funds in India’s) mutual funds’ Assets Under Management (AUM) data for the month of June 2019, we find that AUM of equity mutual funds has dipped by 2.28 per cent. This may make many investors think of moving out of equity mutual funds. So, is it time to move out of equity mutual funds?
First of all, you must look at the investment objective and asset allocation strategy that you have adopted. If your investment objective is of long-term then being invested in equity is better than moving out. Even if you have a running SIP (Systematic Investment Plan) it is better to continue with the investment as being a long-term goal you would be benefited by rupee cost averaging. However, if your investment objective is of short-term, say 3 years or less, then you should think of moving out of equity mutual funds and invest in safer debt mutual funds.
Investment strategy that you have adopted also play a role in making the decision of being in or out of equity mutual funds. If you have adopted a strategic investment theme wherein based on your risk profile you have to decide on the appropriate mix of debt and equity, then periodically rebalance it. If it’s time that your portfolio needs rebalancing then you may either need to buy or sell equity mutual funds based on the valuation of the portfolio and its desired proportion. However, if you have adopted tactical asset allocation then you may have to look at the sub-asset classes of equity mutual funds like large-cap, mid-cap small-cap, etc.
Now with the current scenario, based on your portfolio's proportion and valuations, you may need to reduce the small-cap and mid-cap portion and hold in large-cap funds. But once the equity markets start to recover, you can shift from large-cap funds to mid-cap and small-cap funds.