Thematic funds: Take small exposure
I invested in Sundaram Paribas Energy Opportunities fund NFO in 2008. After three years, the NAV is below Rs 10. Why isn’t it performing? Should I sell?
- S Ganesh Kumar
You had invested in the new fund offer (NFO) of a thematic fund. It invests in energy and related companies. Such funds are risky and do not have a history to look into before investing. You invested at a time when the markets were on the rise and many new funds were being launched. Yes, the fund has fared badly and while we can empathise, the way out for you is to exit. You would be better off cutting your losses now and investing in a consistent better performer.
I have invested in five mutual funds through an SIP for 10 years or more. What is your view on my fund selection?
- Shamsher Alam
It is commendable that you have managed to build a well-diversified portfolio based on the core and satellite philosophy. This should give your portfolio the necessary stability and growth for long-term wealth creation. The fund selection is also good, with schemes that have a track record and performance history to find its way in every investor’s portfolio.
The Rs 3,250 investment across five funds should accumulate Rs 7.5 lakh over 10 years if the combined portfolio earns an annualised 12 per cent or Rs 9 lakh if it earns an annual 15 per cent. All you need to do is to invest regularly and track the performance, making any needed changes if there’s a consistent dip in their performance.
| Funds | Returns* (%) | |
| 3-year | 5-year | |
| Fidelity Equity | 7.1 | 16.08 |
| Reliance Regular Savings Equity | 2.99 | 22.16 |
| Sundaram SMILE | 2.21 | 12.41 |
| HDFC Top 200 | 10.19 | 17.76 |
| DSPBR Top 100 | 7.06 | 17.07 |
| * Returns as on February 28, 2011 | ||
I am 36 and would like to start investing in mutual funds via systematic investment plan (SIP). I can invest Rs 5,000 per month. I have two life and health insurance policies (covers family). I need your help in choosing funds.
- Raju Muthuswamy
At 36, you are a bit late. However, opting for investing equity funds via SIP, is right choice. Equity is an asset class to invest in for long-term wealth creation .
We suggest you consider a balanced fund. These funds have 35 per cent equity exposure and remaining in debt, which brings stability and insulates the returns from market volatility. Invest in a systematic and regular manner in these funds, to get into the habit of investing and experience the performance of your investment.
Consider investing in HDFC Prudence and Reliance Regular Savings Balanced. After a six-month period, you will be in a better position to understand how mutual fund investing works and gain confidence with your investments. You can get into investing in a large- or large- and mid-cap fund then, and build your portfolio.
If the amount invested every month is not the same or is not invested exactly on the same date, then does it have the advantage of SIP? When redeeming such investments, does the long-term capital gains consider the period of one year for the complete amount from the date of first investment or each individual SIP?
- SK Anaokar
Investing through SIPs is a disciplined approach to regular investing. You should base the frequency of your SIP contributions on your convenience and cash flows. For instance, there is nothing to prove that a daily SIP is better than a monthly one, or otherwise. Irregular sums of investments, done regularly, still manages to average out the investment over long-term and over a five or ten-year cycle will not have a marked difference in returns. Focus on investing in good, established funds that have a performance record over the long term and don't get carried away by market euphoria or any tall claims. When redeeming SIP investments, the holding period of units is taken into consideration for long-term capital gains calculation.