The Hindu Business Line : Too many new offers for comfort

I work as a lecturer in New Delhi. I have invested Rs 1.5 lakh in the following funds: SBI Magnum Midcap, SBI Multicap, Fidelity Equity, UTI Dividend Yield, UTI Equity Tax Saving Plan (ELSS), Tata Tax Saving Fund (ELSS), Tata Contra Fund and SBI Blue Chip. Is my fund selection right? Should I invest in the Reliance Equity Fund? I find it attractive because of its hedging feature.

T. P. Bhola

We have reservations about your fund choices. One, you own too many new funds and too few with a good five-year track record. Second, you seem to have bought too many of the new funds from the same fund-house. You probably need to make place for products from houses such as Franklin Templeton and HDFC for a more well-rounded portfolio. These fund-houses offer a higher comfort level because a wide cross-section of their products have a good performance record.

From your fund choices, we observe that you are a regular investor in new fund offers. We don't advocate this. Instead, we believe that an investor should build his core portfolio around seasoned funds that have performed well over a complete market cycle.

When you route your investments through established funds, you have the comfort of knowing that the fund manager and the investment style have consistently delivered results over the up and down phases of the stock market. This is particularly important at this point in time.

With the stock market in the grip of a bullish phase for three years now, spotting winning opportunities in the market is getting increasingly difficult. With valuations of a good number of stocks appearing stretched, investors may also have to brace for downside risks. In these circumstances, sticking to diversified equity funds that managed previous bear phases in the stock market well, appears to be a good strategy.

In keeping with this, we suggest you move the bulk of your investments into diversified equity funds such as HDFC Top 200, HDFC Equity and SBI Magnum Contra, which have a good five-year record. You can hold Tata Tax Saving Fund as it has a reasonable track record.

You may also need to rejig the portfolio to reduce exposure to a single fund house. For instance, you own three new funds from the SBI Mutual Fund stables. As this fund house has seen a churn in its management team in the recent months, we think that it would be prudent to stay with the flagship fund — Magnum Contra Fund, rather than with the new funds.

If a new fund offer does appear unique to you and the idea or theme behind it particularly appeals to you, you can invest in it. But make sure that the new fund takes up only a small part of your portfolio when you make the investment. Add to your holdings if the fund manages a good performance over a year or more. Until then, wait and watch the performance closely.

Mail your queries to taxtalk@thehindu.co.in or by post to Tax Talk', Business Line, Kasturi Buildings, 859, Anna Salai, Chennai-600002.

Aarati Krishnan

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