Why is there net-outflow from equity MF?

In the month of November, equity-dedicated mutual funds saw an outflow of Rs 12,917 crore. This is the fifth consecutive month when there has been a net outflow from the equity mutual funds. This is despite the fact that the equity market is gaining strength every month. So, let us know as to why investors are redeeming their funds now?  

Answer to this question can be found in the ‘disposition effect’. This is a tendency among investors to sell the winning investments too soon and hold the losing investments for too long.  

Since the beginning of the year 2018, the returns offered by most of the mutual fund schemes were negative for one year and three years period, till a few months back. Even the investors, who had opted for a systematic investment plan, (SIP) were witnessing a negative return in their investments. Nonetheless, as the equity market started touching new highs, their investment started showing a positive return. This gave investors an opportunity to book a profit.  

Moreover, it has been observed that “losses loom larger than gains” and the pain of losing is psychologically about twice as powerful as the pleasure of gaining.   

Therefore, we see that the investors are exiting their investments in the last few months as they are seeing profits in their investment.  

Hence, it is important for investors to take a long-term view on their investments. Many investors like to talk long-term and act short-term, which forces them to act accordingly. Therefore, stop checking your investment return every now and then. This will prevent you from taking drastic step based on short term performance.