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The Dilemma Of Exit

Here is what investors should do once investments start souring, or when some gains are not enough

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 the goals they aspire to achieve. Here are the excerpts:

I have invested in an ICICI ULIP plan. Should I continue or stop? Basically, I don’t want to pay the premium.
You have to run the ULIP plan for at least three years. This is not a mutual fund. It is basically a product of a life insurance company. In your case it is a product from ICICI life insurance. Under this plan a part of the money is used for insurance and whatever is left over is used for investment purposes. In such a case you should consult your insurance advisor. ULIP is not a very good option for investment. So, from an investment point of view, you are on the right track when you decided to avoid further exposure to it.

I have been investing in UTI Mid Cap for the last 2 years. How good is this fund?
UTI Mid Cap Fund is not a great mid-cap fund, but it is a reasonable fund. I would rate it as average or just above average mid-cap fund. And every mid-cap fund has a more volatile take on equity. They are far more turbulent as you would have experienced through 2008 -- when mid-caps fall, they fall really hard compared to a more diverse or a large-cap fund.

But I think that over a period of 5-7 years mid-caps hold great potential. They hold the potential of beating a large-cap fund by a substantial margin. So, if you have this kind of time-horizon in your mind and if you can invest regularly, then it would be a great bet. If you have a short-time frame then this is the time when the mid-caps have really been able to run much faster than the large-caps in recent times. If you would have invested over a year or two ago then you would have covered a substantial part of the losses. You have to take a call on that.

My question is that I have a ULIP, Kotak Life Insurance Plan, the three-year lock-in period is about to get over. Should I continue it or should I exit?
I would suggest that you look into it in greater detail. What part of your money is going into the insurance part of the product? Is that insurance coverage adequate for you? How expensive is it? ULIPs become less expensive after few years of running, and you have already incurred most of the expense cost by now. Every ULIP is a customized policy for an individual, so I would suggest that you look into it in greater detail. Generally speaking, ULIP is not a great investment avenue.

I have questions about Reliance Vision and Reliance Growth. I have been holding them for the last 3 years. Now I want to know if I should keep holding or should I move onto something else? Can you suggest a couple of good mutual funds? I have horizon for 5 years.
Both of your holdings are good funds, in fact Reliance Growth is a great fund, though Reliance Vision has not proved to be as great a fund as it used to be. Both remain good fund though, and should not be exited from. If you have only these two funds, then for the sake of diversity you can shift to another good diversified fund. It could be any one of these, Franklin Prima Plus, HDFC Top 200, Birla Sun Life Frontline Equity or UTI Equity Fund. The point is that all your money will not get invested with only one fund manager or one fund company it self, your exposure to risk is thereby reduced.

Will gold prices be going up or down? What should I expect?
Whether gold prices will be going up or down is difficult to say. The reasons for that are simple. Because of the uncertainty in the markets there has been an increase in the price of gold. The reason I think the prices have gone up is that now we have the option of buying gold without actually taking delivery of gold in its physical form via the many mutual funds and ETFs that have been created through which you can invest in this precious metal.

The gold is kept in the bank and the cost of your investment is linked to it. This has led to a big demand for gold. This has made gold prices very turbulent. It will last till the time there is this uncertainty in the market. At a certain point I think gold is a commodity, therefore, after reaching a certain price there would be resistance in its price and then it would fall too. One should be prepared to face volatility in this investment option.

I am invested in two ULIPs. One is from the Birla Sun Life fund house and the other is from ICICI Prudential. Is there a way that I can stop my ECS and then continue it later?
I think that Birla Sun Life should have the option where you can stop the ECS and this would be possible only if you have run your policy for at least three years. Because most of the ULIP policies have a minimum of three years of compulsory investment, assumed or mandated. So you have to check when you first subscribed to this policy. There is another way where you can order the bank to transfer the investment amount to carry forward your policy requirement. In this scenario, whatever is accumulated for investment in the last three years will be diverted to continue the policy.

I have been listening to your show for some time and log on to your website, http://valueresearchonline.com also. Based on the advice from both these sources, I have invested in Reliance Regular Savings Equity, Birla Sun Life Frontline, HDFC Top 200, DSPBR Top 100 and SBI Magnum Contra Fund. Could you give me your opinion on it?
I think the funds you have chosen are excellent. Let me assume that you must be investing for 4-5 years. If you have to invest for that long a period then, rather than putting your money in five, do so in just 2-3 funds from different fund families. The reason behind this theory is that over-diversification may not be that beneficial for investment purposes. Also, don’t invest a lump-sum and resist any and all temptations to do so. But most important, don’t stop investing in a falling market.

I want to ask a question about Kotak Opportunities Growth Fund. I had invested in this fund in December, 2008. Should I stay or exit?
Well, as the name suggests this is an opportunities fund and is a little less diversified than a normal fund. It grows well in climbing markets and as a result of the recent bull rally this fund has made a smart recovery. I would say this is a good fund if you have a time horizon of 3-5 years. But if you are looking at anything less than that, then I think it is about time you should get out.
But remember that it is undesirable if you create a big problem by investing in one go in a mutual fund of this kind. It is really important for you to stagger your investments over time and be gradual with your investments than start with a large one-time investment which has the potential of falling in value

I would like to ask you about the UTI Mastershare, which is the oldest fund. It pays dividend on a regular basis. I think it is a very good fund. But I have never heard any appreciation on it from you. So, enlighten me with your opinion.
UTI Mastershare has an excellent history of dividend payment. It has delivered returns of nearly 20 per cent annually over its long history of 20 years. In fact it’s been 23 years since its launch in October, 1986. So, it must have been a very rewarding experience for you. However, till about two years back, its 5-year performance was horrible relative to all other funds. Of course any investor who invested in 1986 and has stayed there, it is a rewarding experience for them in isolation. But most of my recommendations are based primarily on relative performances. Given a number of choices available in the mutual fund industry and if I have to choose the best among them, then Mastershare has not really been able to build a strong case for itself  in the last two-three years.
Given its track record over 5 years or 10 years, it is not very impressive. Having said all that, now, over the last two or two-and-half-years, the fund has made a smart comeback.

On looking at the number of two-wheelers sold in the country, the result is encouraging whereas the sale of commercial vehicles has registered a fall of 14.8 per cent. Is it a matter of concern?
Yes, it is definitely a matter of concern, although the rate of fall has subsided, but concern has increased on it. It is a positive pointer that the rate of the fall has reduced. I think it is directly linked with credit supply. If the bank rate is not favourable and credit is not easily available then it will become increasingly difficult to stop the fall from accelerating. And the Reserve Bank of India (RBI) has shown concern about this on a regular basis. But the banks are reluctant to lower interest rates and this is showing its effect in the real economy.