Some mutual fund schemes until the last month had given 100 per cent returns in the last one year, especially the small and mid cap funds.
If you are a large cap mutual fund investor, your scheme would have shed at least 8-10 per cent in net asset value since March.
Many investors are disappointed the way markets cracked in April and many are asking whether its time to book profits in mutual fund schemes?
Should you book profits in mutual fund schemes?
It's always the most difficult question any analysts tracking the markets would like to answer. But, let's put things in right perspective. If you had invested a year back in any large cap fund, you would have made a return of as high as 40-60 per cent in the last one year. This is stupendous returns by any stretch of imagination.
If you think that you are going to generate similar returns in the next one year, just forget it. If you can generate returns of 15 per cent, consider that a decent return from a mutual fund scheme. But, if you are in a small or medium cap fund, the risk is going to be very high. If the markets fall even 2 per cent from year, your portfolio could take a severe beating.
On the other hand in a large cap fund you are relatively better insulated. The markets have already fallen sharply in the last one month. There's no point in exiting a mutual fund scheme now, since the net asset value would have dropped. For example, the HDFC Top 200 Fund has seen a negative return of 7 per cent return in the last one year.
Therefore, it would be a good idea to sell your mutual fund scheme, when the Sensex crosses 30,000 points. At least you would get better returns then.