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Aarati Krishnan

WITH the markets back in the bullish mode, equity mutual funds have come up with some impressive return numbers for the quarter ended June 30. Returns on the top performing diversified funds for the quarter ranges between 32 and 42 per cent.

For investors in equity funds this is probably a healthy reprieve from the monotonously depressed markets of the past three years. But the recent appreciation in equity funds is also a good reason to review your investment portfolio. Here are some courses of action for conservative investors, with a limited appetite for risk:

Avoid fresh investments for now: It may be tempting to invest in a diversified equity fund now, especially if you have been comparing the scorching returns on equity funds to the anaemic returns from other avenues.

But if you do so- remember, you will be buying into momentum. The sharp appreciation in market levels has also enhanced downside risk. So it may be prudent to time any fresh investments in equity funds to a correction in broad market levels.

Book profits on index funds: For investors who entered index funds at Sensex levels of around 3000 and Nifty levels of around 1000 points, it is time to book profits. Index funds have delivered returns of around 17 per cent over the quarter, but they have been sharply outperformed by actively managed funds.

Cut losses on the laggards:- With almost every equity fund appreciating by at least 12 per cent this quarter, this is time to clean up your equity portfolio. If any of your equity funds has had an inconsistent or unimpressive track record over the past three years, this is the time to book profits or cut losses and switch to a better fund.

This may be especially true of sectoral funds which are unsuitable for investors with a low risk appetite. For instance, some FMCG and pharma-dedicated funds, which have been lying low for a long time have provided returns of over 25 per cent this quarter. But remember, these recommendations are for very conservative investors. Those who do have a stomach for risk may hold on. For, despite the returns of the past quarter, the markets are still not at unsustainably high levels.

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