A look at the current market situation may make your heart bleed. So, should you stay invested or redeem your shares/units? Certified Financial Planner, Anil Rego, says its better to stay invested. He also answers a very common query that most investors ask - 'Have I invested in the right funds?'
I have been investing in six mutual funds for the last 10 months through the systematic investment planning (SIP) mode. But now with the sharp fall in the stock market, I have suffered a loss of 20-30 per cent loss in all the funds. So should I continue investing or redeem my units? Following are the funds in which I have invested.
- Reliance-Growth Fund
- Reliance-RPDSF
- HDFC Growth Fund
- Franklin India High Growth Companies Fund
- DSPML Tiger
- DSP Gold Fund
-Raghu
Overall fund report card:
Most funds are good; however, it would be possible to give a fund-wise recommendation only when we understand your risk/return profile. Ten months is a very short period. It is a good thing that you opted for the Systematic Investment Planning (SIP) route which you will observe has suffered lower losses; continue with your SIP on a 5-year time horizon, the amount you invest now will reap superior returns.
Individual fund reports:
Reliance Growth: This is one of the best funds among mid cap funds. It has won the lipper fund awards in the past. The recent slip in performance is due the fact that this fund invests in mid-cap companies and the mid cap space has seen a significant correction. It is best to hold this fund, infact, you can continue with the investments.
If like Raghu, you have invested in a mid-cap fund, here is a tip for you:
Invest through the SIP route: The idea of systematic investment is to average out your cost based on market trends, and if you have bought funds when the markets were at all time highs, do not not lose the opportunity to buy it at current lows.
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Reliance RPDSF: This fund has, currently, taken a beating because it is a sector fund. So you could have suffered considerable losses. You can exit this fund in a phased out manner and try to invest in a diversified equity fund. Since you are well balanced between large cap and mid cap funds you can choose a blend cap fund to invest in.
Have you invested in sector funds? Here's what you should do:
Sector funds are slightly on the aggressive side. If you hold sector funds, then it is pertinent to keep track of the particular sector and move out at appropriate times.
HDFC Growth: This is one of the best funds within the AMC. It has also outperformed the category by a wide margin. We suggest you to hold onto this fund and continue investing. This is within the large cap space, handled by a reputed fund manager, Mr Srinivas Rao Ravuri, so there is little cause for worry.
If you have invested in large cap funds, ensure that they are among the top 5 or 10 in terms of long term performance (of at least 5 years). If they are, then do not let this recent fall dampen your investing mood.
Franklin India High Growth Companies: This is a relatively new fund as compared to other funds that have a significant number of years of proven excellence. You can hold this fund. However, further SIP arrangements can be routed into Franklin India Prima Plus, which is a better fund within the same AMC. This fund has shown considerable resilience during the current downtrend, and has also shown stability over the past many years.
Have you invested in a new fund offer that is not performing as well as other similarly themed funds in the same fund house? Then it might make sense to stop any further SIPs. Of course, we also assume that the fund house is among the top rated.
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If you haven't already invested in a new fund offer but were planning to, there are a few questions you need to answer:
1. How widely acclaimed is the AMC?
2. How have other funds within the same AMC performed in this market condition?
If you answer affirmative to these two questions, go ahead and invest.
DSPBR TIGER: We suggest you continue to hold this fund. You can either continue investment into this avenue or switch additional investment into SBI Magnum Contra (this is of contrarian investment style – starkly different from other investment funds that you hold).
Are you worried about your investments in DSP Merril Lynch post the fall of the global Merril Lynch? While it's true that due to the Merryl Lynch crises, all of DSP funds have taken a beating, there is little to worry in terms of safety of your money. Long before the crisis, Merril Lynch had sold its stake in DSP Merril Lynch to the BlackRock group.
DSPBR Gold: This will act as a good balancer for you equity investments, since this fund moves in the opposite direction of equities. According to recent CLSA report, gold mining funds have been rated as the investment which will be most watched in 2009.
Should you invest in gold funds?
The key to remember is that there are two types of gold funds - gold ETFs and gold mining funds. DSPBR Gold fund is an example of the latter. These invest in companies that are into mining. They do not invest in physical gold. ETFs however, invest in physical gold. So if you are looking at investing in physical gold, then choose the former type.
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