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Should I Sell My Funds Now?

My mutual fund portfolio worth Rs 3 lakh is spread over 12 funds. With the Sensex hovering around 9,000, should I sell my funds and sit on cash?
-Sudhir Bhimani

My mutual fund portfolio worth Rs 3 lakh is spread over 12 funds. Recently, I started SIP worth Rs 4,000 in Fidelity Equity Fund and Rs 3,000 in Standard Chartered Classic Equity Fund. With the Sensex hovering around 9,000, should I sell my funds and sit on cash? I also intend to invest another Rs 2 lakh in the next six months in equity funds. Please advise schemes in which I should invest. I have enough investment in FDs, PPFs, etc and so I do not want to invest in debt or income funds.
-Sudhir Bhimani
You are not the only one who is anxious about the Sensex level. However, selling funds now in anticipation of a correction may not be a wise decision. What if the bull run continues for the next 10 years? Even if it crashes, how will your determine that the worst is over? No one on the earth is wise enough to predict which way the markets would move from here onwards. Be clear that timing the market is a futile task. However, spending time in the market can prove extremely rewarding. The rewards would be higher if you spend the time systematically, as you are doing now through SIPs in equity funds. Therefore, don't read too much into the Sensex levels and continue investing.

Now let's get back to your portfolio. As per the Value Research Portfolio Manager, you have an all-equity portfolio spread over 12 funds. Of these nine funds are less than three years old (and hence are not rated yet), many were in fact launched in 2005 only. Mid- and small-cap stocks together constitute nearly half of your assets. Large-cap stocks have 46.69 per cent allocation.

While your portfolio looks well-diversified across sectors and stocks, the performance would depend on the way your new funds behave in future. The good news is that all of them have so far given reasonable returns. The bad news is that you don't know if they would be able to protect returns in case the markets tank. Probably this is the reason for your anxiety. However, there's no way out except for waiting. Since you have said that you have enough investments in fixed income instruments, we are assuming that you have enough time to wait. Keep a close look at their performances and take immediate action if any of them starts to perform badly.

For your additional Rs 2 lakh investment, opt for a five or four-star equity fund (you can find them in the scorecard section of this magazine), preferably the one with a large-cap orientation. A part of this can go to the three rated funds, but keep in mind that all of them have a bias towards mid-cap stocks. HSBC Equity can be another option. Though it's still not rated, it has a decent performance record spread over around three years.

Finally, don't add too many funds. Even for your additional investments, it would be great if you spread the money over the existing funds.