Avoid thematic international funds, go for generic ones

What percentage of total equity allocation should be given to international funds?

- Alok Kalra

Investing in international funds provides some diversification to your portfolio. There is no precise number to go by, but you could consider a range of 5-20 per cent of your total equity allocation.

But be wary of international funds that are thematic or limited to a country or region. Ensure the funds you choose are as generic as possible, so that diversification is achieved in the true sense.

Frankly, you may not find one currently, as there is a dearth of such options.

I want to save money to make a down payment for a new house I am planning to buy. I plan to save Rs 20,000 per month. Where should I invest this money to get assured returns after nine months? I don't want to take any risk with this money. Is a fixed deposit better or are there other options?

-Sachin Ahuja

There are mutual funds (MFs) that can give higher returns than a bank fixed deposit – gilt and bond funds, for instance. But none of these gives a guarantee of return, nor is there an assurance of capital preservation.

A bank fixed deposit is the ideal option for you, since you do not want to take any risk with this money.

I invested in JM Core 11 Series-1 (growth) and the fund is now 22 per cent off what it was when I bought it. It is one of the worst performers in its category. What should I do?

- Mukul Jain

This fund is a very risky offering. Its mandate is to invest in a very concentrated equity portfolio. Its objective explicitly states that its portfolio will comprise of not more than 11 stocks, with each being invested to the extent of 9.09 per cent of the scheme. The bulk of the portfolio (87 per cent) is in mid-cap and small-cap stocks.

We don't have much on historical performance, as it was launched only in February 2008, though its 1-year returns show it has performed miserably.

Now that the market has climbed up, this is a good time to cut your losses and exit this fund. If you want a mid-cap exposure, invest in a mid-cap fund with a proven track record. If you don't want this sort of risk, then opt for a large-cap fund.

What's your view on the future of Magnum IT ?

- Nilesh Patel

The fund is an aggressive bet within the tech space. It has a very concentrated portfolio, with mid-caps and small-caps garnering almost 50 per cent of its holdings. But its returns have not been in sync with its risk. From October 2008 to April 2009, the fund has shed 30 per cent (category average: 20%). It has seen a lot of fund manager changes, with a new one at the helm since September 2008.

How is annualised return calculated for a fund that has declared dividend?

- Gaurav Nampurkar

For funds that have a dividend option, their annualised returns are calculated using their adjusted net asset values (NAVs). This is done by assuming the dividends paid by the fund have been re-invested in units of the scheme at the immediate ex-dividend NAV.

Value Research