Added Risk Quotient

Investing in the NFO of a sectoral or thematic fund is an extremely risky proposition…


I am holding 20,000 units each of Sundaram Energy Opportunities and Tata Indo Global Infrastructure Fund in my portfolio from the time these were purchased in NFO. There is absolutely no positive moment in these funds and my investments have eroded. What should I do? Is there no recourse against poor performance?
- Darshan Dhawan

Schemes  Category  Rating  3-yrs ret (%)  5-yrs ret (%)
Sundaram Energy Opportunities Equity: Others Not Rated -3.73 NA
Tata Indo Global Infrastructure  Infrastructure ** -4.9 NA
Returns as on May 20, 2011 Ratings as on April 30, 2011

Investing in a sector or thematic fund is risky. These funds should never be the first funds that you add to your portfolio. Moreover, you invested in the NFO of both the funds, which further adds to the risk quotient. New fund offerings are good to consider only if they have a new and compelling investment idea which is otherwise missing from your portfolio.

For instance, Sundaram Energy Opportunities is a thematic fund that explores investment in the energy space and Tata Indo Global is an infrastructure fund, a sector which has not taken off as anticipated. The poor returns are reflected in the fund’s performance and despite the emotional attachment you should consider exiting both the funds. It is not worth staying in a continuously poor performing fund. You can draw a lesson from these investments; invest in funds that have a track record and performance history. Also, you should build a portfolio with large- and large- and mid-cap funds as the core holdings. Once you have a stable core holding, you can explore sector and thematic funds, besides multi-cap and mid- and small-cap funds to form the satellite component of your portfolio. This way, your mutual fund portfolio will have the much needed stability as well as scope for higher returns.

We understand your angst against the poor performing fund manager; however, there is no recourse for you against the lack of performance in the funds they manage. Mutual fund investments are subject to market risks, which one should be aware of before investing in them.



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