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Spurning Sector Plays

Retail Investors should shun sectoral funds unless totally convinced

I have been holding onto units of SBI Magnum Contra, Reliance Power and Reliance Natural Resources since a year. If I want to invest further, which of the three should I invest in? Which one is the best? I had also invested in LIC Money Plus at Rs 10,000 on an yearly basis some three years ago. What can I do with it now?

People like you, who invest continuously, should not invest in funds like Reliance Power and Reliance Natural Resources. You should also always keep away from thematic or sector funds. Your view behind investing in these thematic or sector funds should be that you are investing for a specific period, for some other particular reason, or for being convinced totally about the positive prospects of a certain sector. These are the reasons behind investing in these sector funds.

A common investor who invests in mutual funds needs a diversified portfolio. Magnum Contra is a good fund. Also, Reliance Growth or Reliance Regular Savings funds would be superior alternatives to invest regularly.

Money Plus is a unit-linked insurance plan (ULIP), which the LIC brings in every year. you can check its value. However, as we have said earlier, one should not mix insurance and investments. Those investors who can, should opt for a good mutual fund. This would be a far less expensive way to invest and it will provide better liquidity.

I am invested in Sundaram Select (Both Mid-cap Focus + Select Focus), which are down at the moment. How easy, or hard, is it to redeem my mutual funds units, which I am sitting on and how much time would it take? Also, how do I get my know-your-customer (KYC) norms completed?

KYC is not very complicated if you have a permanent account number (PAN). If you hold that, you just have to get in touch with your advisor or reach out to a fund company and once done, you don’t need to do it again for any mutual fund investment. Redemption is very efficient in case of mutual funds. It takes about a day for fixed income fund redemption proceeds to land in your bank account. It takes around two business days — meaning working days like if you are filing on Friday, there is a possibility that you will get your proceeds on Tuesday which might look like four days.

However Saturday and Sunday are non-working days -- two business days for getting your redemption proceeds from an equity fund. Besides that it is fairly efficient in the sense that having a bank account is mandatory and giving your bank details while investing in mutual funds is mandatory. So you can choose to get the redemption proceeds directly into the bank account, which eliminates the time involved in getting the redemption proceeds in the form of a check and then banking it.

Talking about Sundaram now, though downgraded (investors should not get upset if a fund becomes 4-star or from 5-star because there may be many factors which could be driving it). These two funds remain very well managed and attractive funds with credible history. Unless they become 3-star funds and they remain that way for over six months, then is the time to take a redemption call.

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