What to do with dud investments?
Most of you will be holding dud investments. Dud investments are investments that have lost value on an absolute basis or on a relative basis. A stock that you had purchased in the stock market boom in late 2007, and that has lost value by over 50% is a dud stock.
July 06, 2011 / 16:11 IST
Arjun Parthasarathy
Most of you will be holding dud investments. Dud investments are investments that have lost value on an absolute basis or on a relative basis. A stock that you had purchased in the stock market boom in late 2007, and that has lost value by over 50% is a dud stock. A mutual fund scheme that you had invested in during the same period, which has given returns worse than the equity indices is a dud investment. The fall in value of the stock has given you absolute loss while the poor performance of the mutual fund scheme in comparison to an equity index (Nifty or Sensex) has given you relative loss. What do you do with such investments? Do you hold on with the hope that at some point of time the stock prices will move up and you will get back your capital? Do you hold on to the mutual fund investment hoping that at some point of time the scheme will do well? If you do hold on, the risk is that the hope becomes eternal and you never see any return for years down the line. Instead you must actively look to shift out of your investments into something that can actually perform when markets do look up. The risk about shifting out of your dud stocks and looking to get into some other stock is that the new stock in your portfolio also becomes a dud stock. If you have made a mistake once, there is no reason why you should not make a mistake again. Similar is the case with a dud mutual fund investment. If you switch out of that investment into another mutual fund scheme, there is no guarantee that the new investment will perform. There is the option of selling all your investments and keeping it in cash and running away from the market. If you do that, markets will start on its uptrend and leave you wondering why you sold all your investments at extremely low prices. There is one good option. Sell your dud investments and invest in the index. You can invest in Nifty or Sensex index ETF
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