Fund management

A change in investor’s risk profile: One should always invest by keeping his risk profile and objectives in mind. A young man can afford to take more risk than a person nearing his retirement. So, changes in life stages could be one exit point to be considered. One should invest in debt-based fund if he is near his retirement age. Similarly, if one gets married then he has to align his risk preference with his spouse.

Change in fund management: When there is a change in any basis, it is alarming for the investor; for instance change of AMC or fund manager. A change in fund manager is a cause of little worry in passively managed funds, but one should become cautious if his fund is actively managed. The fund’s performance needs to be closely observed after such a change. If it continues to be satisfactory it is fine, otherwise one could exit from the fund.

Compliance with one’s investment objectives: It is very important to keep in mind the target return and investment period while one plans his investment. It is equally important to exit when such targets are met, irrespective of the fact that his investments are still generating returns. Waiting longer might not prove beneficial, as it need not be the same every time.

Market timing: It is very difficult to time the market for equity based funds. Still whenever equity markets are volatile and uncertain and inflation is heading northwards, it is advisable to invest in debt market. In order to avoid volatility due to fluctuation in interest rates, as in the present scenario, it is preferred to take a view on short term fixed maturity plan with duration of 90 days but less than one year. These are giving risk free return of around 8.5-8.70% p.a., which is sufficient to beat current inflation levels.

The above list is not exhaustive and individuals may have different reasons to quit the market, but these will definitely come handy when one is looking to exit a mutual fund.

For Complete IIPM Article, Click on IIPM Article

Source : IIPM Editorial, 2008

An IIPM and Professor Arindam Chaudhuri (Renowned Management Guru and Economist) Initiative

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