With the stock market turning volatile equity mutual funds
(MF) are seeing huge erosion of value. Over the last two
months investors of most of the equity MFs have disappointed
their unit holders.
funds have seen their net asset value (NAV) eroding by
30 per cent to 40 per cent in the last two months.
is the case for both the diversified and sector funds.
While most of the equity funds were badly hit by the sharp
fall in the stock prices following the defeat of the NDA
a government. Since the election results were announced
the sensex lost over 800
banking and power stocks plunged as there was fear that
the new government may stall the reforms process in the
sector. In order to reduce further hits most of these
funds have now increased their cash positions in the portfolio.
fund houses are now telling the investors that they should
remain invested. So most of the investors are not redeeming
their units but are waiting for the reversal in the trend.
The expectation is that the market is likely to bounce
back after the budget as the government may take some
positive measures to boost growth in the economy.
to the erosion in value of the equity assists, most of
the monthly income schemes of mutual funds are also affected.
MIPs which invest large part of their portfolio in debt
assets deploy 10 to 20 per cent in equity. Most of the
MIPs have skipped their dividend in the past month, while
some have reduced their payout. Some of the funds like
UTI Mutual Fund have managed to maintain the regular payouts.
are now advising their clients to go for systematic investment
p (SIP) plans. SIPs follow the basic investment principle
that include regular investments; buying more at lower
prices and less at higher prices. Most of the mutual funds
offer SIPs, thereby allowing investors to save a fixed
amount every month or quarter by purchasing additional
units of the fund.
investing a fixed amount every month, the cost of holdings
will be less than the average price. Let's take an example
of a person, who invests Rs.1,000 every month through
SIPs in K-30 (starting from May 30, 2003 till April 30,
you notice in the example, the person has bought more
units at lower NAVs and lesser units at higher NAVs. Thus,
the average cost of his holdings through SIPs comes to
(Rs 12,000/637.78 units) Rs 18.81, which is lower than
the average NAV (Rs239.38/12 months) of Rs 19.95.
cool savings of Rs 1.13 or 6.02%. The key to investing
is "regular investing", that is at whatever
price or date you invest, the average cost of holding
will be less than the average price.