The Hindu Business Line : Fund Talk

I own units in Birla Top 100, Kotak Contra, Stanchart Classic Equity, Stanchart Imperial Equity, Sundaram CAPEX Opportunities, Sundaram Rural India Fund and UTI Leadership Equity. Which of the funds are better to be retained for the longer term, and which are to be sold/switched over?

Sanjay Pandey

A good number of funds you hold have delivered reasonable returns since their launch. However, all of them possess a short track record of two years or less . If these are the only funds you hold, your portfolio lacks a strong nucleus, as you do not hold funds that have undergone very positive as well as testing times across market phases and delivered well in the long term. Going by your choice of funds, you appear to be following the new fund offer route to investing. Avoid this temptation. As you have not mentioned your risk profile, we assume you have a moderate appetite for risk and invest for the long term.

Three of the seven funds you hold — Birla Top 100, Standard Chartered Imperial Equity and UTI Leadership Equity — invest predominantly in large-cap stocks. Kotak Contra and Standard Chartered Classic Equity are more diversified, while Sundaram BNP Paribas' Rural India and Capex Opportunities are theme funds that invest in select sectors or ideas. We suggest you exit Standard Chartered Imperial Equity as the fund has been an under-performer since its inception in February 2006 and failed to gain significantly in the large-cap rally post the May 2006 correction. You can instead consider investing in Franklin India Prima Plus, which also has a large-cap focus.

UTI Leadership Equity's performance has been better than many large-cap funds over the past year. You may retain this fund but book some profits, if it forms over 10 per cent of your total portfolio. While Birla Top 100 has performed in line with other large-cap funds, we feel it is yet to qualify for the prime slot in a portfolio. As Franklin India Prima Plus and UTI Leadership Equity will satisfy your large-cap need, you can consider exiting Birla Top 100 and buy Birla Sun Life Equity. This fund, with a flexi-cap investing style, will allow you to participate across different market-cap segments depending on the market conditions. You can also divert some of your investments to a mid-cap fund such as Magnum Global as part of your core portfolio. The fund's , quality portfolio of mid-cap stocks and excellent track record place it among the top diversified funds. While mid-cap funds can be very volatile over the short term, they have the potential to prop the returns of a long-term portfolio. If you have made some gains in Standard Chartered Classic Equity, consider selling it. Birla Sun Life Equity would offer you similar flexi-style investing.

Instead, we suggest you add a balanced fund HDFC Prudence, a fund with a sound track record, to your core basket. Balanced funds provide some protection from downside risks by investing a part of their assets in debt, while at the same time capitalise on the return potential in equity. Kotak Contra's performance since launch has been encouraging. You may retain it. But monitor the fund's performance; any underperformance in relation to its benchmark S&P CNX 500 over several quarters should not be tolerated.

Sundaram BNP Paribas CAPEX Opportunities, investing in the engineering and infrastructure sector, has returned well, but requires active tracking. If you see potential in this theme and are willing to take higher risks than regular diversified funds, retain this fund. But book profits as and when you find that the fund is outgrowing the initial weight allocated.

Sundaram BNP Paribas Rural India seeks to invest in companies that participate in the rural growth. The portfolio, however, appears uninspiring and has returned only half as much as its benchmark over the past year. Exit this fund.

The core and satellite: With this, we have suggested Franklin India Prima Plus, Birla Sun life Equity, Magnum Global and HDFC Prudence as the core funds in your portfolio. You can have an exposure of 65-70 per cent of your equity fund investment to these schemes, with an investment horizon of at least five years. You can enter these funds through the systematic investment plan, to average your cost.

Kotak Contra, UTI Leadership Equity and Sundaram BNP Paribas CAPEX can be your funds for diversification purposes. You need to monitor these funds, given their short track record. Also book profits occasionally to ensure that these satellite funds are within the 25-30 per cent overall allocation.

As for the funds we have suggested you exit, they are all not under-performers. We have only tried to eliminate duplication and strengthen your pedestal. While we recommend you exit Standard Chartered Imperial Equity and Sundaram's Rural India funds, you can gradually prune investments in Birla Top 100 and Stanchart's Classic Equity. Ensure that you do not suffer any exit loads by redeeming early, as some funds are now charging exit loads for redemptions made within six months.

Vidya Bala

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