There was mad rush to invest in Mutual fund schemes especially in sector oriented funds during January and February this year. The rush is still continuing not for the investing in the mutual funds but for the redemption.

In this high market drama the players are the same, only the script of the play has changed. Mutual funds which waxed eloquent about their professionalism in portfolio building and investment savvy are suddenly faced with the embarrassing prospect of depleting NAVs. The redemption pressure was such that some mutual funds were forced to liquidate their shares at a loss and some funds have gone to the extent of putting restrictions on redemptions.

Indian stock markets started moving southwards ever since the Union Budget was announced. The reasons were manifold like a hike in the dividend tax, truncating of the Section 54EA and 54EB benefits for mutual funds, withdrawal of tax holidays to IT and Pharma companies, fall of NASDAQ etc., leading to a loss of confidence in markets. This became a mutually precipitating cycle since falling markets led to falling mutual fund NAVs which in turn created redemption pressure forcing the funds to divest holdings leading to a further crash in the markets.

IT Sector funds which were the darlings of investors due to high dividends and NAVs were worst hit by the sensex crash. A quick bird's eye view of the rise and fall of the market mania.

And more chillingly the above depreciation of NAVs is for a period of just one month. It is anybody's guess what these asset depletion values will look like if these same figures are annualized. This has led many critics of the market boom to comment that NAV has virtually transformed into Negative Asset Value. But the question now is what is the way out for the investors.

First and foremost investors need to realize that in markets like in economics there is no free lunch. Second when the markets are falling the answer is not to panic but to make a strategic switch. Thirdly, equity markets are not synonymous with IT and hence investors need not always make a beeline for IT funds. There are also core sector and balanced funds which are highly underpriced and provide a cheap mechanism for entering the markets and participate in the next pickup. Last but not the least, never forget the debt route. Unfortunately people never remember the debt route unless they have to either save tax or when the equity markets are down. An exposure to debt funds also makes a lot of sense to investors. The moral of the story is that for investors this is perhaps the time to book the gains made and switch over to balanced funds. Panicking and booking losses is the last thing an investor should be doing now.

C Sekhar