Exit Equity MFs Now?

Heightened volatility has brought a question to the mind of many investors about whether they should book profit from their MF investments and wait for the market to correct and let the dust settle after which they can make a fresh entry. The article highlights the pros and cons

The equity markets around the world have started to show some signs of fatigues now. The ride for equity investors is not as smooth now as it was in the last quarter of 2020. There are some equity indices such as technology-heavy Nasdaq which has already gone into a correction mode and is down by more than 10 per cent from its recent peak. What is also nagging investors is the rise in daily volatility in the equity market. Year-till-date (March 5, 2020), the daily volatility of key equity indices in India has increased to 1.35 per cent (21 per cent annualised). Compare this with the last five years’ (ending December 2020) median of 0.95 per cent (15 per cent annualised). Historically, higher volatility is a precursor to a fall in the equity market.

Aiding this volatility are the global macroeconomic conditions, which are not shaping in a way that gives confidence in the continuation of the current rally of the equity market in the short term. The most important global factor is rising US bond yields, which if they remain persistent will lead to a rise in interest rate sooner than later. This will adversely impact the equity market; we saw a glimpse of this recently when the US yield on 10-year treasuries breached 1.6 per cent, highest in a year, and the equity markets globally saw a major sell-off.

Returns from MF Schemes