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Another tough week for funds

Union Budget. Key annual economic event. Relevant but too noisy. Undoubtedly it affects (in a limited way) our cost of living, taxes and investments. But you will be well off by ignoring the loud noise created.

This week, every mainstream mutual fund category plunged -- equity, technology and bond funds. Tech portfolios fell 1.66 percent, making them the worst performing fund category this week. Gilt fund lost 0.46 percent this week more than the 0.13 percent fall in equity funds. The generally staid bond fund lost too -- 0.08 percent.

Exceptions were the niche categories – pharma, FMCG and cash funds. And the key reason was anxiety of the budget. And every year's budget brings anxiety to the investment climate. Earlier, budget brought action largely to equities. Interest rates and outlook for bonds is affected by government's actions. This causes anxiety. Not that this is a new phenomenon, but earlier bond fund was not a major individual investment option. Now changes in bond prices and their outlook quickly shows on our investment value too.

A key annual economic event, budget is relevant. In a limited way it affects our cost of living, taxes and investments. Investments because budget gives pointers to the course of interest rates and bonds and various sectors of the economy. The big media buildup to the budget almost drives us to act. Should you?

No. Because its impossible to predict the big budget announcement. And just in case you are sure of something profound, then perhaps it will be factored in security prices anyway.

Resist your temptation to act on noise. Noise creates uncertainty. And uncertainty breathes fear as well as greed. And investment decision solely based on either could be injurious. We know well what happens when we buy, but don't know why. Likewise, if we sell in a panic without waiting to find out why, we are likely to throw away good investments in the process. Don't act on uncertainty. The best way to go will be with what you know -- your plan based on your income and spending needs in desired time horizon and risk tolerance.

The most important reason for buying or selling an investment should be your investment goal. You should buy or sell solely on the basis of how they contribute to your long-term financial goal. Is your investment helping you achieve it? Even the best performing investment can qualify for sell if it does not suit your requirement. Or a not so bright investment for tomorrow can present as a compelling long-term investment opportunity. Your changing needs can drive a buy or sell decision. Sell because you just need the cash now. But don't act while guessing the budget.

Fund Update: During the week, the market gained a marginal 2 points on the Sensex but lost 5 points on the broad based National Index. The key gainers during the week were JM Basic (11.04%), Magnum Pharma (5.15%) and Pioneer ITI Pharma (3.33%). The funds which lost the most were Escorts Tax Plan (-3.99%), IL&FS eCOM (-3.19%) and Pioneer ITI Infotech (-2.78%).