Cash Out Of Equity Mutual Funds?

The current market volatility indicates that your portfolio needs to be rebalanced while booking profits. On the asset allocation front, the equity sentiment index suggests allocating 60 per cent to equities and 40 per cent to debt. The article explains why.

The second half of 2020 and year-till-date have proved to be quite spectacular for the equity markets. This has attracted a lot of investors who are now investing with the anticipation of earning hefty returns. Though the markets took some pauses in between, overall it was in an uptrend. In November 2021, however, Nifty 50 disrupted its six-month winning streak by ending around 4 per cent lower at 16,983. In the previous month i.e. October 2021 we also witnessed elevated volatility where the benchmark equivocated in a wide range of around 1,400 points and saw a pullback of nearly 8 per cent from the all-time intra-day high made on October 19, 2021. Despite the recent hiccups, the returns earned by mutual fund investors are exceptional. As shown in the table below, the returns are quite high from a historical perspective. Even the route of systematic investment plan (SIP) is generating higher returns. Thus, should the movement of equity indices over the past few weeks prompt you to book profits in this period of heightened volatility?

This volatility can be very much attributed to global factors such as Federal Reserve’s taper announcement, surging bond yields, higher crude oil prices and strengthening of the US Dollar index. Moreover, on November 26, Omicron, which is the new variant of corona virus, was detected in South Africa. This further battered sentiments across the global equity markets. With the market heading southwards, subdued sentiments and uncertainty pertaining to the Omicron variant, a prime question is whether this is the right time to book profits from equity mutual funds? To answer this question, in the following paragraphs we have analysed the market valuations, looked at what high frequency indicators have to say and also studied the SIP rolling returns in order to arrive at a logical conclusion.