Mutual Fund investors try hard to make sense of the Sensex

MF investors try hard to make sense of the Sensex

These days, Sensex is testing the nerves of many mutual fund investors. A lot of them have been complaining about how they are unable to make any sense of the Sensex movements. No sooner had they started to believe that the market is on an upward trend after a smart recovery the previous month that the market bellwether started to go down again. And when they gave up on the key index, it started to go up again. 

The Sensex watchers have had enough. 

The Sensex is the yardstick index of the BSE. It comprises of 30 of the biggest and most actively traded stocks on BSE. A lot of analysts keep a close tab on this index to find out the performance of the market. This is precisely when Sensex is also known as the market barometer or the bellwether. 

Does keeping tabs on the daily movement of the key stock market index give any concrete clues about how your MF investments are doing?

While it surely helps to keep track of the market movement, one does not have to be obsessive about it. A key index will tell you little that is important other than the broad direction of the market. Most of your investments will be benchmarked to other indices. Take the example of the ICICI Prudential Blue-Chip Fund, for instance. This largest actively managed large-cap fund (by asset worth) is benchmarked against the Nifty 100 TRI. The biggest actively managed midcap-fund, the HDFC Midcap Opportunities Fund is also benchmarked against the Nifty Midcap 100 TRI. The largest small-cap fund Nippon India Small Cap fund is benchmarked against S & P BSE small-cap. The point here is that Sensex spotting will not give you the correct picture of the performance of your scheme. 

Comparing the performance of your plan against Sensex would be a huge mistake. Many mutual fund schemes are not benchmarked against Sensex, especially when it comes to categories like mid-cap, small-cap, value, and so on. It is then a big mistake to expect these categories to perform in line with the Sensex. At the same time, basing your investment decision based on this would also be a huge mistake. It only makes sense to look at the performance of the real benchmark index of your scheme to better evaluate its performance. 

Obsessive Sensex watchers use this is as a tool to feel good or bad about the economy, stock market, and governance. While the stock market is the barometer of the economy, it should not reflect the reality on a real-time basis. Remember the market always stays ahead of the news. More often than not, it will discount a piece of particular news while emphasizing another one. Judgments need not be correct always. This is precisely why some bets are lost while others are won in the market. 

If you are investing in equity MF schemes, it is not important to keep track of the movement of Sensex. To stay updated with the happenings of the market, keep track of the index. But don’t be imprudent to base your investment decision on the movement of the Sensex.