The Hindu Business Line : Fund Talk

I started my investment in mutual fund through SIP of Rs 1000 since June 2006 in the following: Birla Mid Cap, DSP ML Equity, Franklin India Flexi Cap, HDFC Equity, Magnum Contra & Reliance Vision.

I also had SIP in Franklin India Prima, which I have stopped recently. I wish to start fresh investment through SIP in a few funds. I think infrastructure, power as well as banking sector would outperform in next five-six years. The funds which I have selected are:

Infrastructure Fund: Either of these funds DSPML TIGER, UTI Infrastructure, Tata Infrastructure, ICICI Prudential Infrastructure or Sundaram BNP Paribas Capex Opportunities. Banking: Reliance Banking. Power: Reliance Diversified Power Sector

However, many a time I also think that I should only concentrate on my existing diversified funds by increasing the SIP amount. Or, maybe I should just buy regularly any of these sector funds when market dips. I would like to receive your suggestions and improvements on my idea as well as my investment profile as I am a long-term investor for at least the next 7 to 10 years. However, if you ask me to go ahead with the sector funds, which would be the best funds to invest in?

Chandan Kumar, Delhi Sector or theme funds are suitable for those who have an aggressive risk appetite and who are familiar with the concerned sector’s dynamics.

For instance, banking stocks are interest-rate sensitive and may go out of favour if interest rates continue to rise. Moreover, given the ephemeral nature of the markets, a hot theme might suddenly lose steam, even if the fundamental picture has not changed materially. You need to time your entry and exit when it comes to theme funds. In other words, such funds require more active monitoring and management on your part, than diversified funds.

That said, if you are bullish on a sector or theme and would like a more focused exposure to it, than what is offered by a purely diversified fund, you can invest in such funds, so long as they do not form the core of your portfolio. The core part of your portfolio should be reserved for diversified funds with a good track record. These funds will be instrumental in building your long-term wealth.

The funds you currently hold are good choices for a core portfolio, so you may continue your SIPs in them.

The non-core portion (about 30 per cent of your fund portfolio) may be invested in sector or theme funds, contra funds, value funds, international funds and the like- funds that carry a higher risk profile, but might also help give your overall returns a leg up.

This portion of the portfolio will also have to be tracked and churned more often.

We prefer funds that invest in structural themes over those that focus on a single sector. Your decision to invest in funds tracking infrastructure and power is appropriate.

A strategy of buying on market dips, however, may not necessarily work in the case of sector funds. Instead your decision to invest should be based on a view that the sector may outperform the broad market.

Timing of your investments does matter in these cases. Generally for sector or theme funds, because the window of opportunity may not be very long, lumpsum investments may be better than SIPs. All the funds you have short-listed have performed well within their respective categories.

To avoid duplication of holdings, however, we recommend you invest in DSPML TIGER and Reliance Diversified Power. Reliance Banking has performed well and is a good choice if you wish to play the banking theme.

SHANTHI VENKATARAMAN

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