The Hindu Business Line : Fund Talk

Though you could invest in a new fund if you feel it offers a unique benefit or style, it would unwise to make all your mutual fund investments through the NFO route.

I am an IT professional aged 32. I have invested in Birla Infrastructure Fund, Fidelity Equity Fund, Templeton India Equity Income Fund, Reliance Equity Fund and SBI Magnum Contra Fund. I also have ongoing SIPs in the following funds: DSP ML Equity, Reliance Growth and Sundaram Select Midcap Fund. Kindly advise me whether I should continue with these investments or make changes?

Divesh Rathod

We would recommend a few changes to your current portfolio to reduce the degree of monitoring you may have to do and to tone down the risks associated with it. Your portfolio of equity funds features some diversified equity funds (funds that invest across sectors) and a few funds that are focused on specific sectors or themes, such as infrastructure or mid-cap stocks.

It is not clear if you have opted for the latter because you have a positive view on a certain theme (say, infrastructure or mid-cap stocks). But if you are an investor who does not intend to frequently review or make changes to your portfolio, you might want to stick to a simple portfolio of diversified equity funds alone, without dabbling in theme funds.

To earn a good return from a theme fund, you would have to closely track the performance of infrastructure stocks in that theme and know when to liquidate your investment. If you are not an active investor, we would suggest retaining funds such as Magnum Contra, Fidelity Equity Fund, DSP ML Equity and Reliance Growth in your current portfolio.

You can also retain Templeton India Equity Income Fund, because it offers a unique opportunity to stay invested in equities while diversifying outside of the Indian markets. Given that the Indian market may not always turn in the best performance in the global investment universe, such diversity may help your overall risk-reward equation.

We would recommend that you trim Birla Infrastructure Fund from your portfolio. As a relatively late entrant to the infrastructure theme, the fund has trailed a few of its peers in the infrastructure space.

If you are keen on a theme fund and intend to closely monitor the sector, DSP ML Tiger Fund, which has a longer performance record may be a superior option.

Sundaram Select Midcap Fund is another fund on which we would recommend booking profits, as we hold the view that expanding fund size could prevent the scheme from sustaining its impressive past performance. You could replace both these theme funds with diversified equity funds such as HDFC Equity and Franklin Flexicap. If you like a mid-cap focused fund, Magnum Global Fund appears to be a good alternative.

From an examination of your fund choices, we get the impression that you have been active investor in new fund offers over the past couple of years. From among the NFOs you have invested in, Fidelity Equity Fund and Templeton India Equity Income Fund have recorded a good performance since their launch.

Though you could invest in a new fund if you feel it offers a unique benefit or style not offered by any existing fund, it would unwise to make all your mutual fund investments through the NFO route.

It would be more prudent to route the bulk of your investments through diversified equity funds that already have an established track record. This enhances your chances of earning a consistent return from your scheme through a volatile or bearish market phase.

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Aarati Krishnan

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