New Year begins on gloomy note for funds - Views on News from Equitymaster

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New Year begins on gloomy note for funds

Jan 19, 2001

The start of the New Year has not been worth raving about as far as the mutual fund industry is concerned. The first 17 days of January 2001 saw only four days when funds made net purchases, with the balance 9 days witnessing net sales.

The Sensex has moved very uncertainly in January 2001. There were instances when the Sensex fell below 3,960 points, only to cross 4,170 points within a few days, then sinking to nearly 4,000 points once again. Mutual funds moved in tandem with the Sensex as is evident from the chart above. In 13 days of trading (until January 17, 2000), funds made net purchases only on 4 days!

Fund managers have bought shares when the markets are down, to exploit the value opportunities. They then offload the stock when it rises appreciably. This is better known as ‘timing the market’, and is not necessarily a healthy trend for the industry. Most fund managers have an extremely short view on stocks (at times as low as a quarter) and do not invest over the longer term. Ultimately this may harm the fund more than it does good.

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