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Appreciating Investments

Avoiding market mania depends on ability to segregate good from bad stocks

In an exclusive show on All India Radio, titled Market Mantra, Dhirendra Kumar, CEO, Value Research, provides answers to listeners’ queries to help them make better and more informed decisions on investing their money to reach their goals. Here are the excerpts:

The very year I initiated myself into stock market investments I had to face losses when the markets tanked. Now, at current levels of the market my losses have been covered. So should I remain invested or exit?
This is a question where you will have to find your own answer. It depends if your goal gets fulfilled if you were to withdraw the money. If you intend to buy a house or a car or have some specific goal that gets fulfilled by withdrawing the investment, then go ahead. If you don’t need the money for the next 4-5 years then stay invested and invest more on a regular basis. Don't try to time the market. But if you need this money in the next year-and-a-half or then I would still suggest that you should withdraw the investment.

I have some units of Fidelity International Opportunities Fund. Should I hold, or exit?
It’s a decent fund but, it is relatively new, therefore it is not possible to say much about its performance. Its international allocation can be a maximum of 35 per cent, but till now it has maintained it at less than that. And since Rupee is getting strong therefore I think its international exposure will remain low. From a point of diversification I think it is a good option. If you are invested in this fund then you should give it some more time.

I had been investing in Reliance Growth for the last two years and now when the market has gone up my investments are around the break-even point. I need some money so should I realize the amount. Also, suggest another fund that I can invest in?
Definitely you should withdraw if you need the money and you are able to break-even on your investment. No one can guess what the markets will do next, there is a chance that the markets will go up, but there is also a chance that it may go down. The kind of returns we saw last Monday was unusual and it should not be expected on a regular basis.

If you are managing to avoid losses and if it fulfils your goals, then withdraw the money. I think that Reliance Growth was a very good fund earlier. Now, it’s just a good fund. My suggestion would be to invest in a fund whose performance is more consistent.
Aside from Reliance Growth, if there is another fund that you need to invest in, then choose one from these funds: DSP Black Rock Equity fund, UTI Equity fund, Birla Sun Life Equity fund or Magnum Contra.

I have invested via the SIP route in SBI Magnum Contra, HDFC Top 200 and Magnum Taxgain. I want to invest for the long-term. The money from this investment will be needed after 5-6 years. I have also invested in the share market directly to the tune of Rs 1.5 lakh. Right now I am deriving a profit of 20 per cent from it. Now, my query is, should I book profits?
This depends on what is your point of view. If you have invested in the last two months then you will be making a profit. If you had invested last year, then your portfolio would still be struggling to break-even. Now, if you have invested in stocks directly after understanding the market and the company, then keep up with your investments. But if you had invested just like that, without going too deep into the matter, and now you are in a position to book profit, then it’s very much like a lottery. If you don’t have an in-depth understanding about your investments and can't decide where the company will stand after 5 years, then I would suggest that you should take out the money.

I am currently invested in SBI Tax-saving scheme. Can you tell me what all I should keep in mind while investing? Also, which other tax-saving funds should I invest in?
If tax saving is not your only aim then I would suggest that you should invest in a good diversified equity scheme. And if you are investing for a minimum of five years then choose a generic fund and invest in it on a continuing basis.

What would be better, investment in mutual funds or insurance?
A mutual fund is a better investment choice. You could of course keep your money in a bank or you can buy shares. And if these possibilities are not possible it’s always better to invest in mutual funds. Unit Linked Insurance Plans (ULIPs), I think are convenient, but they are extremely costly as an investment. The insurance that comes with it is not very sufficient compared to the amount that you should get. In that sense you neither get good insurance nor a decent investment. Therefore, for an investment purpose you should invest via mutual funds.

The Sensex and the Nifty seem to be consolidating, but the rally continues in the small- and mid-cap stocks.
Yes, this is quite interesting. Last week on Monday we had the market hitting double-circuit breaker. What we noticed was the complete turnaround in the investors mind. They were sure that bad times are over, the worst is behind us and only good times are ahead.

Now questions are being asked, is it reason enough to get so excited? Are all our problems over? Will companies maintain the same momentum? I think there is a reasonable consensus on the feel good factor as can be seen on the small- and mid-cap indices. But I don’t think investors are being discerning enough. What we have seen is the quality mid-cap companies and the low quality companies both gaining. I don’t think that differentiation is happening.

Also, I think foreign investors and other large investors or professional investors, who came into the market in the last four months are becoming more skeptical.

Do you think a word of caution is required for the retail investor?
I think so. It is about time to ask this question because the only lesson which you can take right now is that the markets turn around when you least expect them to. It was a dazzling surprise last Monday. It may not always be that way. It could be a very unpleasant surprise next time, if the markets turn around the other way and on the same scale, same magnitude. Then you need to be careful that you are not holding something that is just a useless piece of paper.

I had invested in ICICI Prudential Equity and Derivative Income Optimizer, and Reliance Equity Advantage funds a year ago. Should I continue holding them?
ICICI Prudential Equity and Derivative Income Optimizer fund is an arbitrage fund. This fund gives a modest return. When the markets fell this fund didn’t fall, this fund gives small, but very steady returns. If you want steady returns, but not high returns and you don’t want to take any risk then this is an ideal fund. Reliance Equity Advantage fund is not a very good fund. It is quite expensive and the returns are not able to justify it.

If you are looking for a fund from the Reliance family then move your money to Reliance Growth. This will give you better returns and the fund has been in the market for a long time and has proved its mettle. And my advice to you would be that instead of investing a lump sum, make an investment plan whereby you would be investing systematically over a period of time. Choose two good equity funds and invest regularly. 

I will be investing for the first time in the mutual funds. Could you tell me something about tax-saving funds? Which would be a good one?
Tax-saving funds have a minimum of three year lock-in period. A tax saving fund is the only instrument which gives 100 per cent equity exposure. Other tax-saving instruments are either hybrid or fixed income. My personal choice among the tax saving funds are Sundaram Tax Saver, Magnum Tax-gain and the Franklin Tax-saver.

Four years ago I had invested in ICICI Pru Lifetime with an SIP of Rs 1,500. Now, the investment is down. At the time of investment I was told that I should come out of investment after three years. Should I continue with the SIP, or should I exit the investment?
This plan is a ULIP. I think you should look at your investments from another point of view. Equity investments, either through ULIPs or mutual funds, will witness a lot of volatility. But three-year SIPs in mutual funds are at a break-even point. So, you shouldn't be in loss. For ULIPs if the market goes up by 15-20% then you should break-even too. But if you have booked a loss, then reconcile with the fact. The better option would be to withdraw the money.

I had started investing in Canara Robecco via SIPs, but they have lost the application after the initial investment, though they have a scanned copy of that. I have re-applied, but there is a discrepancy -- this happened in February and SIP was supposed to start from April? Can they backdate the investment?
If it is an operational glitch. If they have provided for it then they can. But if they have not debited from your bank account, then I don’t think it is possible. It is possible that the difference between that day's price and today's price is coming from some account which is either payable by Camps or Canara Robecco for the omission. So, technically, you cannot buy a fund on a backdated basis, but compensating for a negligence on their part is possible -- somebody will have to pay the difference.