Unless an NFO offers a unique theme, there are no particular benefits of investing in one.
I invested in the following mutual funds at the time their NFO. I seek your advice on whether I should continue to hold or switch to other funds. Franklin Flexi Cap, HDFC Premier Multicap, HSBC Advantage India, Reliance Equity Opportunities. Reliance Natural Resources, Sundaram S.M.I.L.E, Sundaram Energy Opportunities, Tata Dividend Yield, Tata Service Industries, SBI Bluechip, Magnum Tax Gain, UTI Infrastructure Advantage.
M. R. Ramdas
All your funds, barring Magnum Taxgain have been purchased during the NFO period. At the risk of repeating ourselves, we would like to emphasise the risk of purchasing a fund during an NFO. Not having a track record of performance or a portfolio to assess future potential, NFOs simply cannot be assessed based on any merit.
One has to merely rely on what the offer document states as the fund's objective and strategy. Unless the NFO offers a theme that is already not available and you have conviction in such a theme, there are no particular benefits of investing in an NFO.
The Rs 10-NAV should not tempt you into investing. It is the returns a fund can deliver from any point that matters. Take the case of Sundaram Energy Opportunities. The fund is down 4 per cent since its launch, with its NAV languishing below Rs 10. Added to this, it is a close-end scheme which you cannot exit, even though you may have spotted underperformed beforehand. Since there is a large universe of funds with a track record of at least five years, avoid NFOs unless they are unique and appealing.Most of your funds sport a middle-of-the-road performance, while a few have been underperformers. Your portfolio requires at least two or three sound funds with a good track record. We would like to recommend few such funds, besides some exit options. As you have held most of your funds for a fairly long period, you are unlikely to suffer any losses on your holdings, barring a couple of them.
Core funds
As we are not aware of your age or risk profile, we would like to suggest funds with moderate risks. Start SIPs in Reliance Equity Opportunities, UTI Master Value, Benchmark's S&P CNX 500 index fund and HDFC Prudence. The aggressive style of Reliance Equity Opportunities and the value-oriented approach of UTI Master Value would complement each other well. HDFC Prudence would give you some debt exposure besides equity, while the CNX500 would give you a single-window exposure to the top 500 stocks. Book some profits in Franklin Flexicap – the fund has returned 25 per cent compounded annually since your purchase. If you are looking at a value-oriented focus, you may continue to hold Tata Dividend Yield. Fresh exposure can be avoided. Hold Sundaram S.M.I.L.E if you can stomach risks associated with investing in small-caps. The dividend option you have chosen will ensure occasional sweeping of profits.
Exit options
Consider exiting underperformers - UTI Infrastructure Advantage and Sundaram Energy Opportunities, once they become open-ended in December. While you could have negative returns (since launch), you may be better off selling them, thus avoiding further opportunity loss. Reliance Natural Resources too with a mere 3.3 per cent return since launch is a marked underperformer. Its portfolio, laden with energy stocks have continued to disappoint in declining and rallying phases of the market. Exit HDFC Premier Multicap, Tata Service Industries SBI Bluechip and HSBC Progressive Themes (earlier called HSBC Advantage India). While the first two funds' performance has been mediocre, the last two have been underperformers since their launch. You are locked in to Magnum Taxgain until 2011. You may assess its performance at a later date.
Use the money gained from exiting these schemes to start SIPs.
VIDYA BALA
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