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Skip the noise around market highs

Sensex at the BSE rose 13.7 per cent to close at a high of 21,164 on October 31.


November 15, 2013 3:06:28 am

Investor behaviour on noise around market highs can not be better showcased than what was witnessed over the last two months — September and October.

There was a complete dichotomy in their behaviour when it came to their investment in domestic funds and those in overseas funds of funds. While mutual fund investors went ahead to redeem investments worth over Rs 5,300 crore from the domestic equity funds in the expectation that the Indian markets had already peaked,there was no such pressure on the international fund of fund schemes since there was no noise in the market anticipating a rise in global markets.

In the two-month period,the Sensex at the BSE rose 13.7 per cent to close at a high of 21,164 on October 31. Large number of equity fund investors latched on to the opportunity to redeem their holdings. During the two month period,the industry saw redemptions worth Rs 5,335 crore from the domestic equity funds. In October alone the equity investors sold investments worth Rs 3,225 crore when the the markets rose by over 9 per cent.

However during the same period the funds investing overseas witnessed no such pressure and on the contrary witnessed net inflow into their schemes and therefore a rise in their assets under management (AUM).

It may be argued that the size of the international fund of funds is small and the investors in such schemes are more evolved. But this perhaps marks out the domain of smaller but more aware investors. For the larger universe of investors the behaviour of this group should have been a pointer to remain invested.

Instead in a year-on-year comparison,the mutual fund industry’s equity AUM fell by 13.6 per cent from Rs 162,711 crore to Rs 140,637 crore. However the AUM of the fund of fund schemes has remained more or less stable at around Rs 2,350 crore over the same period rather rising from Rs 2,356 crore to Rs 2,370 crore. Obviously investors instead of responding to the noise around market highs by encashing should have remained put.

Sandeep is a senior assistant editor based in New Delhi.

sandeep.singh@expressindia.com

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