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Powering Performances

Dhirendra Kumar, CEO, Value Research explains how to add vigour to your investments in these crisis-ridden times

In an exclusive show for All India Radio listeners, Dhirendra Kumar answers queries on how to pick mutual funds to add the right flavour to their portfolio that would help them achieve their goals.

I had invested in Templeton India Govt Securities Long Term Fund in July 2008. Since then it has given a 22.5 per cent return. I understand that equity funds have got battered, but this fund has performed unusually well. What are your comments on this?
Let me say that you have been extremely lucky. You got a little more than 22 per cent return, and I must say that luck played its part. It’s good that you have managed to capture the gain. What happened in September of 2008 was unique—we saw an unexpected phenomenal decline in interest rates that led to bond prices rising. We have never seen such a sharp decline in bond yield in such a brief period of time. After you invested your money in June-July, something happened in the market that cannot really be anticipated. And you are the lead beneficiary of that. But expect close to 12-13 per cent returns on a 12-month basis hereon. However, these Gilt funds are looking more volatile than usual. Income funds, which also have exposure to corporate debt and a wide array of securities in their portfolio are better positioned. Expect above average returns from them. Plus, they are also tax efficient.

Can you tell me what is a mutual fund? How do we invest in it? What are the precautions we should take?
A mutual fund is an aggregate portfolio. There are many types of mutual funds. If you want to invest in the market then you can do so in fixed income funds or in shares. For that you will have to increase your knowledge about them in order try to make a diversified portfolio. This would be difficult for you to do. That is where mutual funds step in. They help you by investing a small amount of your money that you gave to them—you become a part of the mutual fund. There are many mutual funds and choosing one among them can be difficult at times. Therefore, it is necessary that when you have an equity fund on the mind, then look for a stable fund rather than looking at which fund performed the best in the last few days. And the portfolio's price keeps changing on a daily basis due to the movement in stock markets.

Mutual funds have a few plus points. One of them is that you can participate even with a very small amount. Secondly, you will not have to bother about what should be sold or bought on a daily basis. Thirdly, this is a very tax efficient method. Fourthly, the risk factor is less. As such, you can run a diversified portfolio of a mutual fund with a lot of ease.

When it comes to bond funds, it will require some assessment about the risk due to its portfolio. And for this you should go and consult a financial advisor.

I have a Bajaj Allianz ULIP policy and want to ask if I should continue it or should I withdraw it and buy into equity?
All ULIP policies have a three year lock-in period and hence even if you want to move out, you cannot do so before three years. And a ULIP is a risky way to generate money.

You will have to stay with the investment before withdrawing it.

How is the DSP Black Rock T.I.G.E.R. Fund? Should I continue my SIP in it? I have also invested in a 4-star rated fund, Sundaram BNP Paribas Select Focus, should I continue with it or switch to a 5-star fund.
From all of these sectoral and thematic funds, you should not keep a high hope. But, Black Rock T.I.G.E.R. is a good fund. You can compare it to an infrastructure fund. This fund gave excellent returns before 2008 and in coming days these funds might be in a little bit of trouble. Sundaram BNP Paribas Select Focus is an excellent fund despite being 4-star. This is an aggressive fund. And I think you should not think of selling it because it is a 4-star rated fund.

I had invested in the SBI Global (Magnum Global) fund. At the time its NAV was 63 and now it is 25. So should I keep it or liquefy it?
This is a risky and rewarding fund; but if you can keep investing in it even in the downturn then I would say that you should continue with the investment. You will not get stable returns, but when the market goes up it is one of funds that will go up faster. If you are investing for the long run then do so without worrying. But if you are investing for a 2-3 years period then this fund is not a good choice.

Do you think this is a convincing run by the markets? What, in your opinion, could be the reason behind it?
There are not many reasons to see why the stocks are going up. There is only one conclusion I can think of and that is the negative sentiments were too high. Liquidity has increased too. In the last 5 weeks the FIIs have invested heavily. And now people think the companies’ valuation is good. Due to this reason people have started taking risks again. If you look at it fundamentally, then there is not much of a reason for companies to be able to sustain this rally. But if FIIs keep coming to India then it is hard to say till exactly when the market will keep the rally going.

I had invested in many funds and have lost track of many of them. The broker too cannot identify them for me. How do I find out where I was invested in?
You will at least need the name and the approximate period of investment. From your bank account you will find out all of these details—which fund you invested in, on what date it was invested and be sure to remember the person in whose name you had invested. This should not be difficult, as it would have been debited from your account and therefore, you can trace it from there. With this information you can get in touch with the AMC. They will help you out.

A few years ago I had invested in Tata Indo Global Infrastructure Fund. Right now it is down a little bit. So should I hold it or not?
Most of the mutual funds catering to the infrastructure theme are dicey in my opinion. Will its performance match that of the early 2008? I doubt it. Therefore, I would suggest that you should invest in a good diversified fund with a proven record. And Tata Indo Global Infrastructure fund doesn’t match the scale — it is a relatively new fund. Maybe you should invest in Tata Growth or Tata Equity Opportunity Fund rather than Tata Global Infrastructure fund.

Can you name a good fund where I can invest for my children?
Let me tell you how to approach a financial goal. If you can relatively plan a time horizon, as in this case, it would be 15-18 years. Accordingly, you should try and make an asset allocation. I would say 90 per cent in equity for now, to start with. As you near the time to realise your money, you should gradually move into fixed income category of funds. For example, if you invest Rs 1000, then 90 per cent of that should go to equity and as you get near to the goal, equity allocation should get reduced and allocation for fixed income should be increased.

How I can participate in intra-day trading?
Intra-day trading I think is a dangerous proposition. There is no guidance for it nor is there anything special about it. It is one of the fastest ways of losing money. So be careful about it.