The Hindu Business Line : Fund Talk

The present environment provides a good opportunity for first-time investors to enter the market and for existing investors to weed out underperformers.

I have SIPs in Sundaram BNP Select Midcap, Reliance Growth, Reliance Equity Opportunities, Fidelity Equity, and HSBC Advantage India, on which I spend Rs 7000 per month. I started the SIPs two years ago and continue to invest. Most of the above investments are making losses, even though I selected large-cap best performing funds at that time. Should I change my portfolio? I am ready to invest for three more years. I also plan to invest in another five equity funds for Rs 1000 per month each. For this, I am thinking of SIPs in HDFC Growth, HDFC Equity, HDFC Top 200, HSBC Equity, Tata Infrastructure and DSP T.I.G.E.R funds. Please advise about the choice of funds.

Sreejith Balakrishna Kurup

The current stock market rout would have completely wiped out all your gains and pushed your two-year fund performance into the red. Sadly, as a good part of your SIPs would have been started during the bull runs in 2006 and 2007, your return picture would appear bleak now. Further, returns from lump-sum investments made two years ago, would have fared better than SIPs (as you would have accumulated more units at higher costs during rallies). To sum-up, the current market is a painful lesson for all bull market investors.

Having said this, the present environment provides a good opportunity for first-time investors to enter the market and for existing investors to accumulate a quality portfolio and weed out the underperformers.

Portfolio re-jig

Your portfolio does not have too many funds that can reasonably contain downside risks. Most of the funds you have mentioned do not wear a large-cap profile. Further, the choice of your funds suggests that you may have looked at only short-term performance while selecting them.

For instance while Sundaram Select Midcap and Reliance Growth are midcap focussed funds, Reliance Equity Opportunities too has a strong mid-cap bias. Even as HSBC Advantage India is tilted towards large-caps presently, the fund has a flexi-theme mandate and does not restrict itself to large-cap stocks.

Only Fidelity Equity fits the bill of a large-cap fund to some extent. Fidelity Equity and Reliance Growth (with huge debt and cash holding) have lost lesser than the other funds you hold.

Continue your SIPs in these two funds and stop further SIPs in the others. Adopt a hold strategy on the others until the market revives and consider booking profits after setting target returns. Of the other funds that you plan to invest in — HDFC Top 200, HSBC Equity and HDFC Growth are good choices. Although HDFC Growth, with a value investing approach, has performed reasonably well in a bear market, it has in the past underperformed a good number of diversified funds during rallies.

Keep this in mind while you renew your SIPs on the fund at a later stage. If you wish to hold an infrastructure theme fund, you can consider ICICI Pru Infrastructure. However, wait for clear signs of market revival before investing in the fund. Invest in small lump-sums instead of SIPs if you can track the sector and are prepared to book profits occasionally.

SIP strategy

An SIP strategy in a falling market can be very rewarding and can also help bring down your earlier higher costs of units. Hence for your current SIPs in Reliance Growth and Fidelity Equity, you can consider increasing the monthly SIP amount so that you can buy more units at lower costs.

This may to some extent make up for the high costs at which you would have bought units when the market was near its peak. Similarly, with the surplus that you would now have, from stopping SIPs in some of the funds, you would be able to invest more in HSBC Equity, HDFC Growth and HDFC Top 200. Two, consider going for SIPs for six months to one year at a time and renew them only after reviewing fund performances. Another strategy in this market is to invest in lump-sums for every fall of say 5-10 per cent in the Sensex. You can fix a limit that you are comfortable with and accumulate units of your funds when the market declines to these levels.

If you have any specific goals post the three-year period you have mentioned, move your exposure to safer avenues of debt at least a year before the date of your requirement.

VIDYA BALA

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