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Lock-In Dilemma

The course of action open for an investor is fraught with loss-making possibility

I am locked-in into Sundaram Energy Opportunity Fund. Since it did not do well at all, should I wait till positive territory is achieved, or should I cut my losses and redeem despite having to pay the exit load? What of Sundaram Select Smallcap Fund.

I have also heard of FMPs from Tata MF and Kotak MF entering the market. Should I invest in them?

Sundaram Energy Opportunity Fund is a closed-end fund and the time horizon of this investment should have been looked at in the beginning -- 3-5 years. And in between, if it has gone up or down in performance, then it was explicitly built-in as a possibility. The story behind this fund launch was that it intends to capitalise on the opportunity created in the energy sector with a spread of gas and feedstock for companies. It does not only invest in energy companies, but also those which are going to be key beneficiaries of changes in energy feedstock.

It’s early days yet to come to a conclusive decision. If you have time for another two-2-3 years, the fund should translate well. If this hypothesis works, it should be a meaningful thing for those companies and benefit the fund in turn.

You are in profit right now as far as Sundaram Select Smallcap Fund is concerned. You can get out of it, if you choose. This is a high risk-high-return fund and if at the time of your exit, the market is not very good, you will not get high returns. If the market is good and the momentum sustains, this fund should prove to be more rewarding than any other generic fund we refer to. So take your call.

But this fund would always be a high-octane one. Small-cap companies tend to go up and down sharply and more so in a market like this. It would also be exposed to high liquidity risk, which such a portfolio carries.

FMPs are suited only for investors who are sure that they would not require the money before the expiry of the timeframe. If the tenure of the FMP and your needs as well as your ability to compromise on the liquidity for this period match, go ahead and invest in it. But ask questions about the credit quality, where the fund would be investing and what kind of things the fund won’t do. That is crucial as it is the only risk which is there in FMPs. Otherwise, most of the things have been reasonably guarded by the changes in new regulations.

I have invested Rs 15,000 in an SIP for a period of 10 years in July. The funds involved are Magnum Contra, Birla Sun Life Equity, HDFC Prudence and Reliance Growth. I started the SIP before entry loads were abolished. Should I continue on the same pattern and if I do so what will be my loss? Should I stop and restart? Then on what basis should I carry out my fund selection?

Your fund selection is already a good one. Having HDFC Prudence gets you some degree of fixed income allocation. These are funds with a long history of credible performance. Therefore, do not effect any change in your fund choice. However, do discontinue the SIPs and start again because you are investing for the long-run. The magic of compounding works, but it works in reverse and here is something which you are entitled to in the changed situation.

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