Fund Talk

I have invested in the following funds: DSP BR Micro Cap (SIP), DSP BR Top 100, HDFC TaxSaver, HDFC Top 200 – both HDFC funds through lump sum and SIP, HDFC Long Term Equity, HDFC Prudence, Fidelity Global Real Assets, IDFC Premier Equity, Canara Robeco Tax Saver, Birla Sun Life Frontline Equity, Sundaram Financial Services Opportunities and Magnum Tax Gain. Which funds should I hold and which to exit?

Mayuresh Deo

Badlapur

We are not aware of your risk profile or your time-frame for investment. You would do well to have some goals against which you set aside sums. Even if you do not have anything specific, you can at least set some time period over which you wish to invest. If these are done, then you would be able to take a call on the amount of risk you would be willing to assume. For instance, mid-cap funds may be a risky choice if you have a time frame of say only two years in mind.

Having said these, we assume that you have a moderate risk appetite and can handle a combination of diversified and mid-cap funds. If you are saving money against any specific goal, exit equities and move to safer debt options, if your target amount is reached ahead of your goal.

Too many large-caps

We will first identify funds that can form the core of your portfolio. DSPBR Top 100, HDFC Prudence, HDFC Top 200, IDFC Premier Equity and Birla Sun Life Frontline Equity would all fall under this category what with a steady long-term track record. However, three of the above five funds are pure large-cap funds. We prefer that you hold diversified funds and not restrict your exposure just to large-caps.

Hence, while all the funds are good performers, for the sake of diversity, switch from HDFC Top 200 to HDFC Equity. To this add Fidelity Equity. These six funds can form the core of your portfolio. Try to run SIPs in at least four of the funds. You can consider exiting HDFC Long Term Equity as its multi-cap approach is not necessarily unique. Even HDFC Equity adopts such as strategy.

Tax savers

Exit all your tax-saving schemes, if their lock-in is over as they have been underperformers when compared with the other equity funds that you hold. It is also not a good idea to run SIPs on ELSS (you have one in HDFC TaxSaver) as every instalment is locked for three years. Also, the new Direct Tax Code, does not provide for any deduction on ELSS from April 2012. Given the average performance of these funds, you would be better off saving in safer avenues for tax purpose. If you still wish to invest, you may opt for HDFC TaxSaver for the current year and wait for clarity on the tax side for the next year.

Fidelity Global Real Assets invest in hard assets and stocks of commodities and resources. It has been doing well. You may continue to hold it. Nevertheless given that it s theme fund, do not run long-term SIPs. Stick to your two-year plan and do not hesitate to book profits in years of abnormal returns of say 40 per cent or more (you cannot expect global funds to return as high as Indian funds during rallying markets).

Hold on to DSPBR Microcap. The fund has a sound portfolio but suffers from the current underperformance of mid and small-cap stocks. It is a high risk fund and your SIP of Rs 7,500 per month appears a tad high. Reduce SIPs to about Rs 2,500-3,000 and continue for one more year and review performance with benchmark BSE Smallcap. Renew SIPs for one year at a time, based on the return. Remember the fund should be able to beat the large-cap and diversified fund category average and be capable of delivering at least 20 per cent return, compounded annually, over a five-year time-frame to compensate for the risk.

Sundaram Financial Services Opportunities has underperformed its benchmark over a three-year period. Exit it and consider investing in ETFs such as Benchmark's Junior Nifty BeES. However, as there are no SIPs for equity ETFs, you have to either buy on market dips of say 5-10 per cent or discipline yourself to buy small quantities every month.

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