PSU funds: Limited history

I want to invest in SBI PSU Fund. Is it a good fund to invest in for long-term?

- Shibu Sakaria

SBI Mutual Fund recently launched its new scheme, SBI PSU. It is an equity diversified fund that mainly invests in stocks of domestic public sector undertakings (PSUs). The PSU investment theme looks quite promising as PSUs have strong fundamentals and are generally leading players in their industries. These companies also showed greater resilience than their private sector counterparts during the economic downturn.

However, the fund's true potential lies in eventual privatisation, which leads to significant value unlocking. This looks unlikely in the foreseeable future. What the government is doing currently is merely diluting its stake. Also, nothing prevents a diversified equity fund from investing in PSUs when opportune, while a PSU Fund will be constrained to invest in PSUs only. In addition, a new fund such as this lacks a record.

Besides this one, there are two other PSU Funds – Religare PSU Equity and Sundaram BNP Paribas PSU Opportunities, also relatively new, with limited history to evaluate.

So, if you are keen on investing in PSU Funds, wait for these funds to prove their suitability to form a part of the portfolio. Else, we believe a good diversified equity fund with proven credentials should work well for your 10-year investment horizon.

I have surplus cash of Rs 50,000, which I plan to invest in Reliance Growth fund through the SIP for 3 years. Is it advisable to invest in one of the existing funds or to go for a new fund? Here’s my portfolio

 

Funds
Reliance Growth	-25%
DSPBR Top 100 Equity	-20%
S BNP Parias Sel Midcap	-20%
BSL Frontline Equity	-20%
Franklin India Prima	-15%

- Raghu

Three years may not be an adequate investment timeframe for investing in equities. Your portfolio is tilted to mid-caps, with 60 percent investment in these – Reliance Growth, Sundaram BNP Paribas Select Midcap and Franklin India Prima. Additional investmnet in Reliance Growth will increase your exposure to mid-cap funds even further. These mid-cap funds may push the returns from your portfolio up in a rising market, but will also fall more in a downturn. On the other hand, large-cap funds like DSPBR Top 100 Equity and BSL Frontline Equity may not give chart-topping returns in rising markets but they will provide downside protection when markets tumble. Therefore, a conservative investor should make up the core of his portfolio with large/multi-cap funds which provide stable returns over the long run. Keep mid-cap exposure up to 20 per cent.

I am a first time investor. I want to invest Rs 20,000 annually for my children in a mutual fund. My investment horizon is 10 years. Please suggest some funds.

-Sanjay

Balanced funds are a great vehicle to start your long-term investment. These typically invest over 65 per cent in equities and the rest in debt. This helps them provide growth with reasonable stability. They are tax efficient too. YOu must invest through an SIP only. You can look at Birla Sun Life 95, DSPBR Balanced, HDFC Prudence and Tata Balanced

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