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Favour Fund Fundamentals

No magic wand can deliver market gains, investors need to be more than careful

Dhirendra Kumar, CEO, Value Research answers viewers' queries on mutual funds, stocks, personal finance issues and more on the Market Mantra programme on All India Radio

I have invested in ICICI Prudential Infrastructure, Reliance Growth and Tata Pure Equity, when the market was on 13,900 points and now the market is on 13,600. I don’t need the money for the next three months. After six months I may need the money. So, will the market rise till that time?
I will be disappointing you in the reply, which is ‘I don’t know’. And secondly, investing from a six month point of view in equity market can be very dangerous. If after six months you need this money for some important work, then it would be advisable that the small loss that has occurred to you must be reconcilded with and you should withdraw from the funds.

I would like to know about 4 ELSS for tax saving purpose so that I can invest in them.
Franklin India Taxshield, HDFC Taxsaver, Magnum Taxgain and Sundaram BNP Paribas Taxsaver are the funds that I would opt for.

My question is regarding Tata Indo Global Infrastructure Fund. This investment is with a long-term perspective of 5 years. I have also invested in Kotak Indo World Infrastructure. What should I do? What should be looked at in the theme?
If you have a long term perspective, then you should stay with this fund. The problem is that most of these funds were launched when the market was at its peak. Ever since then, there has been a huge decline. And of course both the funds showed remarkable comebacks within three months of relatively good times returning.

But for these funds to do better, it is necessary that the market comes back in a bullish mode. So we will need to be patient. I am hopeful that in 5 years time you get reasonable returns.

It is important that you avoid big investment at peaks and in lumpsum. I think infrastructure is a fairly vague theme. If you look at the Sensex then 70 per cent of the Sensex can be classified as infrastructure. Therefore, infrastructure funds are nothing, but a reasonably diversified portfolio which excludes the FMCG sector and the Pharma companies. So it is a great story in which many people are buying into.

But it's better to invest in a good diversified fund.

Can you enlighten us on the ban of entry load in mutual funds?
The SEBI guideline is simple. All funds launched after August 1, 2009 will not charge entry load, rather than that investors will pay the commission based on mutual consent. Even the SIP investment there will bear no entry load. Whatever you decide, based on mutual understanding, with your fund advisor you can pay.

I have bought into ICICI Life Time Prudential Plan. Will it be beneficial to switch from this fund?
This is a pension plan from ICICI Prudential and I am not much aware of it. But you must follow a simple rule. If you intend to invest for a long time, then invest in mutual funds and make that investment lean more towards equity allocation. When you are nearing your retirement then you should switch more of the investment to debt. Investing more in equity in the long run is always a better option. And investing in equity for the short run can be deadly. Therefore, you should invest keeping these broad guidelines in mind.

When I approach a specific advisor, then he concentrates more on ULIPs? I am confused; he doesn’t talk about anything else.
It is suggested that you should find a good advisor. and if you are not able to do so, then invest on your own. Go to my website (http://valueresearchonline.com) and choose one or two mutual fund based on your need and invest in them regularly. Once you have chosen a fund then go to the fund company’s website and download their form and send a cheque to them along with the form. This is not very difficult; it may be difficult in the starting. But I would say there are many advisors who would help you to invest in mutual fund; it’s just that you have not met the right one till now.

I would like to ask a question about the funds that you keep recommending, like Birla Sun Life Frontline Equity and Magnum Taxgain. Do you think this is a good time to invest in them or should I wait? And as you were talking about entry loads, there was a rule earlier also that these will not be charged for those who would invest directly. Then why don’t they remove the exit load, because the customer gets stuck with the fund for a year?
There are varied opinions on this subject. On direct investment there was no entry load earlier also. Now the entry load has been abolished completely. Now you will have to set the advisor’s fees directly. Now as for your first question, I would recommend that you do not invest lumpsum at one go. Rather invest regularly and keep investing for many years. Equity funds are a better place for the long term. If that is the case then it is a good time to invest.

I have invested a huge amount in mutual funds out of which I have 20 per cent in ICICI Prudential Infrastructure which is 21 per cent down, should I continue? I have other investments in funds like SBI Magnum Global, Sundaram BNP Paribas Rural India , Kotak Opportunities and JM Basic. These are not giving me much return; they are all down by 20 to 50 per cent each. Should I stay in these funds or switch to some other fund? Which mutual fund should I swing to?
To my understanding all of these funds were the hottest by the end of 2007 and you have invested about that time or in the initial months of 2008. And ever since then a portfolio of this kind would have fallen by nearly 45 to 50 per cent. These investments did recover a bit recently. Though there is not much hope of recovery for one fund, that is JM Basic. One because it has lost substantially, and secondly, the fund manager who had invested in those stocks at that level is not around to take care of the investments any further. So given the changes that have occurred in it I have given up on this fund.

ICICI Prudential Infrastructure, is a relatively stable fund. The other three are high-risk funds. So, if you can stick around for three-five years then they should prove rewarding.

The entry load on mutual funds has been abolished. But on the existing schemes the load will remain. Is it true or false? I have 20 different schemes going on out of which 2-3 are not doing well. So, I would like to know if you can shed some light on some funds like Religare AGILE Tax fund, SBI Magnum Global Fund and JM Basic Fund. The other 17 funds are doing good.
Yes, there is a possibility, but there are some companies that are likely not to charge the load after August 1. Any way you have the choice of discontinuing and then starting afresh. And you already have an existing folio so it shouldn’t be very complicated.

The second question, if you should continue, before that, a matter of concern is that you have 20 funds. 20 funds do not necessarily add value. The reason why you invest in mutual funds is that they give you convenience. It gets you instant diversification and it gets you professional management. But by having 20 funds, you are trying to get too much of a good thing which can be bad. It is avoidable. You can get reasonable diversification from 4-6 funds. And use this August 1, 2009 no load deadline as an opportunity to concentrate on this objective.

Of the three funds, Religare AGILE is worth stopping and there is very less hope about JM Basic. But you know, having two mid-cap funds and four large cap funds will do the job. You know there is a possibility that with 20 funds you can get a mixed kind of return.