The Hindu Business Line : Fund Talk

I have been investing in the following funds: Franklin India Flexicap fund, Franklin India Prima, HDFC Equity, HDFC Premier Multicap, HDFC TaxSaver, Kotak Midcap and Fidelity Special Situations through SIPs for the past two years. I need to know if any of the above funds need to be excluded due to poor performance. Do I have a balanced exposure to large-caps and mid-caps?

Yagya Agarwal

Of the funds that you hold, HDFC Equity, Franklin India Prima and HDFC TaxSaver have a solid track record and inspire confidence. You can continue to invest in these funds through the systematic investment plans.

Franklin India Flexicap, HDFC Premier Multicap and Kotak Midcap have a track record of less than two years. The first two funds have the flexibility to invest across various market capitalisation segments — large, mid and small. They have, however, over their tenure since launch, predominantly invested in large-cap stocks. On a comparison with other large-cap funds over a one-year period, Franklin India Flexicap's return of 49 per cent over the past year is at par with large-cap funds such as Kotak-30 and Franklin India Bluechip.

However, the fund's ability to move deftly across large and mid-caps would determine its future performance. You can continue with the fund but take short-tenure SIPs and renew the same after analysing performance periodically.

Its peer, HDFC Premier Multicap has returned 35 per cent in the same period and fails to impress. With a concentrated portfolio of about 20 stocks, the fund has to make the right moves to prove itself. Given the lacklustre performance till date and the fact that you already have a similar fund in Franklin Flexicap, you can consider switching to HDFC Top 200 or increase exposure to HDFC Equity.

Kotak Midcap requires a wait and watch strategy. Its one-year return has bettered some of its peers but being a mid-cap fund, it can go through periods of sharp blips. You must, therefore, be prepared to wait. Fidelity India Special Situations (FSS) is a new fund and has a theme that aims at investing in special situations such as mergers and turnarounds. With just about six months since launch, it may be too premature to gauge the fund's performance. If the theme appeals to you, then keep track of performance and its ability to stick to its mandate before renewing your SIPs.

HDFC Equity is the only fund that could be termed as a pure large-cap fund. Kotak Midcap, Franklin India Prima are mid-cap funds while HDFC TaxSaver has, on many occasions, donned a mid-cap robe. Hence, with proportionate weightage based on the market cap of stocks in your funds' portfolio, it appears that your basket is balanced between large-and mid-cap with a slight bias towards mid-cap. However, this may constantly undergo a change depending on the investment style of the flexi and theme funds you hold.

Remember, the proportion of mid- and large-cap funds you hold should be based on your risk tolerance. If you are a risk-averse investor, mid- and small-cap funds should not form the core of your portfolio. You can alter your SIP amounts to attain the mix you are comfortable with.

Is it better to invest in existing funds (that are performing) with higher NAV or in a new fund with a Rs 10 NAV?

Manish Jaiswal

When you buy a fund, you are in a way buying into the prevailing stocks in the fund's portfolio and therefore, the current stock market levels. The fund's performance from the time you buy will depend on its stock selection and the fund manager's investment style over the next few years. In other words, it is the returns from your starting point that are relevant, not the entry point by itself.

In fact, an existing fund with a higher NAV may often be a better choice. For one, the higher NAV shows that the fund has been around for years and has earned a higher return for investors (take the case of HDFC Equity or Reliance Vision). Second, you have a chance to study the past record of the fund and make an informed decision. You are handicapped for information in case of a new fund and invest in it hoping that the strategy or theme will work well.

Avoid entering a new fund on the lure of a Rs 10-NAV; instead, take limited exposure if you are convinced about its investing style and the theme is not similar to a fund you already hold.

Queries may be e-mailed to mf@thehindu.co.in, or sent by post to Business Line, 859- 860, Anna Salai, Chennai 600002.

Vidya Bala

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