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Map Your Fund Future

Bailing out of investments that are at a loss, or breaking even, is a crucial decision. Here is help:

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:

I invested in Fidelity Special Situations Fund some two years ago in May. Last year when the market was at an all-time high it doubled in value, but I couldn’t withdraw my money. I went into loss thereafter, which was near 30-40 per cent. Now, it has gained back its original value. Should I withdraw or wait for the market to climb?
Fidelity India Special Situations Fund is a good opportunistic and aggressive fund. My suggestion to you for all times would be if this investment is for many years, it is a prudent and valuable investment. Keep investing regularly. If you have achieved your goal and this money is required for consumption now, and you can buy something you plan to now, then withdraw. But, if this is your long-term investment, then keep investing.

Is the know your customer (KYC) number akin to an identity card that a fund house sends to us? Also, based on your advice, I had changed from ICICI Prudential Infrastructure to ICICI Prudential Dynamic Fund. Now that the market are up, should I change back?
It depends. If you look at it, now when the market is running on the upside, the infrastructure theme too has seen an uptick in its growth trajectory -- higher than that of the rest. In the same way when the market was falling this was the fund that faltered the most, compared to a diversified fund. If you are invested in this fund, then try not to change it -- a diversified fund is better for all type of investors. Any thematic fund or sector fund should not be the primary option. If you have three or four funds, then thematic or sector fund can be one of them.

As far as the KYC is concerned, the number remains constant along with a prefix, it matches with your permanent account number (PAN). I don’t know if mutual funds also issue some sort of ID card or so. I don’t think there is any provision as such. Once the registration is done you need not go into it again.

I am a regular investor in DSPBR T.I.G.E.R., IDFC Classic Equity, and ICICI Prudential Infrastructure. Now, my fund value is almost at break-even point. Should I continue with these funds, I have no worries about withdrawing the money? I can invest for the next five-six years. How will it perform in the future?
I am very hopeful that over the next 4-5 years your portfolio has the potential to perform. My only concern is whether you will maintain a balance. Don’t concentrate your portfolio in a specific area. That will prevent your portfolio to go up sharply in a month, in the kind of market we are witnessing now, but more than that, it will also prevent a massive decline in your portfolio when the market crashes. I will say that if you are investing an equal amount of money in all, then effectively your portfolio has two infra funds. Which means it will account for 50 per cent. This is a problem if the markets turn around because markets, by nature, are cyclical. If you keep going in one direction for a long period of time then your portfolio will be more vulnerable. And I would say that IDFC Classic is not the best of equity diversified funds with a long history. If I have to build a good portfolio I would have replaced IDFC Classic and one of the infrastructure funds, whether it be DSPBR T.I.G.E.R. and ICICI Prudential Infrastructure. Both are good infra fund, replace them with a diverse fund.

I have been investing in UTI Mid Cap Fund, growth plan for the past two years. I checked the fund at the http://valueresearchonline.com and this fund comes under the high risk category and is an average performer. Should I continue holding it or should I change it?
If you choose a mid-cap fund of any fund family, it will be a high growth one, simply because it is more volatile compared to a more diversified fund. Mid-cap funds have the potential to deliver greater returns simply because they are more risky. That is why we classify them as high-risk. If you are investing for a very long period then I think this fund has the potential to deliver a substantially higher return.

I had invested about Rs 1.5 lakh in the stock market in the middle of 2008 and now it is back to the level at which I had invested. I want to ask if I should stay invested or should I shift to mutual funds? And if so, then which one?
This totally depends on how long you are investing for? And what are you your goals? Whether to invest directly in stock markets or through mutual funds depends on how confident you are about your investment capabilities. It also depends on how much time you will put to research and then arrive at decisions about which you are confident. If you can be precise with your understanding of the market then you should invest in the stock market directly. If you cannot do so, because of lack of time, or any other reason, then you should invest through mutual funds.

Here is a helpful warning: invest in equity funds only when you are investing for a few years. If you are planning to invest for a few months and expect good returns in that time, then I would suggest that you should take your money out of equity as soon as you manage to break even.

My investments in mutual funds are about 4-5 years old. Right now I am suffering a loss of 10 and 20 per cent (only those funds that I had bought at the peak of 2008), but that doesn’t bother me much because I am in it for the long time. If I have Rs 10 lakh, then should I repay the housing loan which is at 10.5 per cent interest today, or should I invest in mutual funds?
At this stage I would say it would be worthwhile to consider the repayment of the home loan. This would be a good time to stagger your investments. At this point I would argue, based on the risk-reward trade-off, that it would be worthwhile to reduce your debt.