Fund Talk

I purchased the following mutual funds in 2008 just before the market crash: Reliance Diversified Power Sector Rs 50,000, Reliance Natural Resources Rs 8000, JM Basic Rs 25,000 and UTI Infrastructure Advantage Fund Series I Rs 15,000. These funds have not been performing for over three years now. Will this underperforming trend change? I do not need the money now and can wait for five more years. As I am a Defence personnel, is it good for me to have a term plan?

Surender Singh

The timing of your investment is rather unfortunate. The problem has been compounded by the fact that your investments have all been made in themes that have been underperforming since the 2008 downturn. Your NAV would have eroded by 33 per cent in case of Reliance Diversified Power Sector.

Reliance Natural Resources, if bought at the time of its launch in January 2008, would now be down by 6.8 per cent (absolute returns, not compounded) and JM Basic to a fourth of its value as of January 2008. UTI Infrastructure Advantage Series became an open-ended fund in December 2010 and was merged with UTI Infrastructure in January 2011. You would have been given an option to exit.

Opportunity loss

While the infrastructure theme has been beaten down enough, various concerns linger in the sector. Even if the above themes do pick up, it may take a while before they recoup the last few years' losses and deliver returns that match peers. Hence, a change in sector trend, even if it happens in a year's time, may not guarantee market returns over your holding period.

Suffice it to say that it is highly risky to enter theme funds unless you can track them actively and time your moves. You also seem to have invested in NFOs. Please avoid investing in NFOs given that they have no track record to rely upon. Your current losses also mean that you cannot take further risk that may cause more capital erosion.

Consider using the SIP route; your 2008 experience will tell you that lump-sum investing can hurt badly, especially when the market appears heated.

Even though you will receive less money in your hands now (than that originally invested), we suggest you cut your losses and move to better funds. Exit these funds and use an SIP over the next two years to invest in HDFC Top 200, Fidelity Equity and HDFC Balanced.

It is a wise idea for all individuals who have dependents, to hold a term plan that would help repay any loans or make up for loss of income as a result of unfortunate demise of the insured.

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I am 30 years old and invest in the following funds through SIPs. DSPBR Top 100 Rs 4000, ICICI Pru Focussed Bluechip Rs 4000, HDFC Top 200 Rs 3000, HDFC Balanced Rs 5000, IDFC Premier Equity Rs 2000 and Magnum Emerging Businesses Rs 2000. I am currently paying an EMI on my home loan. My equity investments are worth Rs 10 lakh. I have started investing Rs 20,000 per month and intend to continue for the next 10 years. I want to build a house, for which I will need Rs 50 lakh in 10 years. Please advise whether there is a need for portfolio change. I am a medium-risk investor.

Chandrasekkar Narayanan

You have chosen good funds for your portfolio. However, quite a few of them seem to duplicate each other. We will, therefore, suggest a few changes. DSPBR Top 100, ICICI Pru Focussed Equity and HDFC Top 200 are all blue-chip funds. We presume your medium-risk appetite has prompted you to choose these funds. However, given that you have a 10-year time-frame, you need not be too cautious in your investment style.

While HDFC Top 200 is among the best funds in the equity fund universe, for the sake of diversification in holdings, we suggest you switch to HDFC Equity. Additional exposure to mid-caps through HDFC Equity may also help pep returns over the long term. Continue investments in mid-cap focussed fund, IDFC Premier Equity but book profits if absolute returns in any year are unusually high, say 40 per cent or more, and reinvest them in your balanced fund. Magnum Emerging Businesses has been doing well, given its well-timed entries in to sectors.

This said, it does take concentrated exposure to sectors to be able to implement its strategy. While we recommended this fund a while ago, given that your risk appetite is not high, we suggest you exit the fund. You can instead move to Fidelity Equity, which is more diversified and has a large-cap bias. Review performance of all your funds and exit if the fund underperforms the respective benchmark for a year or more.

Exit well before goal

Moving to your target of Rs 50 lakh in 10 years, it should be comfortably achievable, given that you have Rs 10 lakh of investments already in hand. We assume that the Rs 10 lakh is the capital amount. Allow this to grow but sell that part of the investment pertaining to Magnum Emerging Businesses and use it to increase SIP in HDFC Balanced.

We would also suggest that you start exiting equities from the end of the eighth year from now, as it is likely that you would have reached your target easily by then, assuming a 15 per cent annual return. Start systematically transferring the same to short-term debt or liquid funds. This will ensure that any steep market correction, closer to your goal, does not hurt your portfolio.

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