Booking losses

Suresh Krishnamurthy

THE revenue accounts of two of the better performers for the six months ended September 2000, which were published recently, reveal contrasting investing styles.

The funds in question are Kothari Pioneer Bluechip Fund and Sundaram Growth Fund. While Kothari Pioneer Bluechip Fund booked losses actively during the year, apart from booking profits, Sundaram Growth Fund booked profits but not losses.

The strategy represents a change in Bluechip since in 1999 it booked only a lower proportion of losses. However, interestingly, both the funds fall in the top quartile of performers. In short, both strategies appear to have paid off during this quarter.

There are several sides to this issue. One is that a fund that actively books losses does a favour to the investor who holds on to the mutual fund units. Normally, retail investors tend to hold on to their losses and do not sell even if stocks dip to lower levels every day.

A fund manager helps such investors by curtailing loss-making positions that can be re-entered at lower levels. However, a fund manager who does not book losses will counter this on two counts. It would say that it does not book losses because it is sticking to its bets. It would also say that the other fund books losses because the investments made were not properly researched in the first place.

These issues can be resolved only by detailed reference to the changes in the portfolio of both the funds. Anyhow, a strategy employed over a short period should not be taken to be as representative for the longer term. Also, it is not exactly about identifying the better strategy.

The reactions of these funds during different stock market cycles over a longer period will be a valuable piece of intelligence for investors. This will serve to define the character of funds over time and underline the risk involved in an investment in a particular fund during different market cycles. This can be used by investors to tune their investment needs accordingly.