Fund Talk

I am 41 years-old and self-employed. I am invested in the following funds: Reliance Banking, Reliance Diversified Power Sector and Reliance Growth - through SIPs running from October 2008. I also hold Reliance Regular Savings Equity (March 2010), ICICI Pru Dynamic (SIP from January 2008), ICICI Pru Infrastructure (SIP from April 2009), ICICI Pru Focused Bluechip (October 2009) and HDFC Top 200 (SIP from July 2010). Considering my age and employment, am I investing in the right funds? I am planning to add Rs 5,000 more for SIP from this month and wish to invest in DSP BlackRock Top 100 or HDFC Top 200/HDFC Equity.

Ramanathan Menon

Reliance Banking and Reliance Growth, two funds that you kick-started from the market lows in October 2008 have made handsome gains of 45 per cent and 31 per cent compounded annually though the SIP route. Viewed against this, Reliance Diversified Power Sector's annualised return of 17 per cent over the same period can be termed unattractive.

The fund's performance emphasises the fact that timing is of utmost importance for a theme fund. As the power and infrastructure themes have been prolonged underperformers since the rally that began in March 2009, this thematic fund could not beat the diversified fund category. This has been the case with another theme fund of yours – ICICI Pru Infrastructure.

Theme funds

Here's a quick reminder of dos and don'ts for investing in theme funds. One, invest in sector funds only if you have the conviction (after some research) that the sector holds potential for the next one to two years. Two, you should be willing to track the sector and actively booking profits in the event of extraordinary gains. IT theme funds in 2007 for instance, managed just a fourth of the gains they garnered in 2006, although the market was zooming in 2007. You should, therefore, be adept at taking calls to book profits. Three, lump-sum investments often work better in theme funds. Agreed, it is a tough task to time the investment. A better option would be to invest in SIPs for shorter periods of six months to one year and continue it only if the theme still holds potential.

Our suggestion to you is to sweep some profits from Reliance Banking (sell units that are held for over a year now), even as you continue your SIPs. Take a call at the end of this year and do not expect the sector to generate flashy returns, the way it did in the last couple of years. Exit Reliance Diversified Power Sector, given that you have made some profits. Retain ICICI Pru Infrastructure but stop the SIPs. You have averaged enough during a lacklustre period for the sector. Wait for another 6-12 months to see signs of pick-up. The fund should at least beat its benchmark-Nifty; otherwiseconsider switching out.

You currently have over 30 per cent exposure to sector funds. Book profits occasionally to keep this to 10-15 per cent of your portfolio. One other trend that we notice in your portfolio is that too many funds are from the same fund house – ICICI Pru and Reliance. While this may have been done for convenience, you would lose out on the benefit of different strategies of fund managers in other AMCs. Hold funds from at least 4-5 AMCs to get a good mix.

Core funds

We will now move on to the diversified funds that you hold. HDFC Top 200 is an excellent choice, although you would have benefited more had you started the SIP early on. Nevertheless continue the SIP. This would be among the core funds in your portfolio. Continue SIPs in Reliance Growth but he fund may not act as a pure midcap fund given its large asset size.

Add IDFC Premier Equity through SIPs if you wish to hold a pure midcap. Start an SIP on Quantum Long Term Equity with the additional sum that you intend to save. ICICI Pru Focused Bluechip Equity has done reasonably well but lacks a long term record. We suggest you exit the fund and invest in HDFC Equity through SIPs. Note that this suggestion is merely to strengthen your core portfolio as ICICI Pru Focussed Equity does not hold a long track record to qualify as a core fund. Continue to hold ICICI Pru Dynamic but renew SIPs every six months after checking for performance against its benchmark Nifty. You can refrain from DSPBR 100 as you hold its peer HDFC Top 200.

Queries may be e-mailed to >mf@thehindu.co.in , or sent by post to Business Line, 859- 860, Anna Salai, Chennai 600002.

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