Avoid risky sector funds

K. VENKATASUBRAMANIAN | Updated on: Mar 10, 2018


Systematic Investment Plans should be run for long periods to derive returns that beat inflation.

I have monthly Systematic Investment Plans in the following funds: Rs 2000 each in Fidelity Equity fund, Franklin India Bluechip and Sundaram Select Focus; Rs 3000 each in HDFC Equity and HDFC Top 200. Rs 1000 is parked in UTI Dividend Yield. Some of these are recent investments, while most of the rest were done during the past 6-30 months.

Besides these, lump-sum investments have been made in: JP Morgan smaller Companies, Reliance Regular Savings Fund Equity, SBI Infra, Birla Sun Life Frontline Equity and Tata Infrastructure during the past 18-48 months, mostly in the dividend options. We request your recommendations for improving returns.

— Priya and Gopinath

You appear to be holding too many funds in your portfolio. This makes it both difficult to monitor them, and also leads to avoidable overlap or over-diversification that can drag returns. Some of the funds may also need to be exited on performance grounds. You are currently investing Rs 13,000 through Systematic Investment Plans. It will suffice to spread this sum across three to four funds to achieve a balanced portfolio.

You can invest Rs 3500 each in HDFC Equity and Franklin India Bluechip. Consider parking Rs 3000 each in UTI Opportunities (switch from UTI Dividend Yield) and IDFC Premier Equity. This would give you a blend of large-, multi- and mid-cap funds.

You can exit Sundaram Select Focus, as the fund's performance has been sluggish during the past three years.

HDFC Top 200 and UTI Dividend Yield are funds with an impressive performance record, but we believe the mentioned funds should suffice for your purpose.

You haven't stated your age, goals or the time horizon for which you want to make investments. This limits the scope for suggesting the best alternatives for you.

Review the funds' performance regularly (at least once a year) and rebalance if necessary. Please note that you need to run Systematic Investment Plans for sufficiently long periods of time, in the 5-7 year range at least, for you to derive inflation-beating returns.

Also, when you generate surpluses, park sums in debt and gold to achieve a diversified portfolio.

Coming to your lump-sum investments, there are two infrastructure funds in your portfolio. Dividend options don't significantly reduce the risk profile of the fund, as the fund may declare dividend only when it chooses to. But yes, in sector funds you are better off opting for pay outs, to cash out during a rally. In general, unless you need the cash or you can re-invest dividends for superior returns, it isn't necessary to opt for this option.

Sector funds are risky, require active monitoring and even possibly market timing. Exit both Tata Infrastructure and SBI Infrastructure, as both have been heavy underperformers during the past three years. The theme itself has been under a prolonged down phase and is filled with uncertainty on various fronts, such as interest rates, execution challenges in a slowing economic scenario, and government policy.

You can also exit JP Morgan India Smaller Companies, as it has had a volatile run, and may not adequately compensate for the risk taken.

Switch from Reliance Regular Savings Fund Equity to Reliance Equity Opportunities - a multi-cap fund with a reasonable performance record. You can retain Birla Sun Life Frontline Equity. From the sale proceeds, you can increase your Systematic Investment Plan amounts or can also choose to invest in some other asset classes.

Published on February 04, 2012
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