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Reviewing Fund Performances

A fund should not be discarded on bad short-term performances

Yearly review is suggested for funds' performances. What should be done when a fund’s grade is falling and over some period it has not been giving good returns? I have ongoing SIPs in ICICI Prudential Emerging Star Fund. Should I cancel my SIP in this fund and continue them in ICICI Prudential Infrastructure Fund? Should I also switch my investments to the latter?

- Ramakant Deshpande.

While selection of funds should be done on the basis of its performance in the past 3 to 5 years, a fund should not be discarded if it performs badly for a few months, or even a year.

However, if a fund has not been among the good performers for a considerable period of time, then you need to re-look it. If you have SIPs going on, cancel them and start them in other good funds. You may also consider redeeming existing investments to other good funds. For selecting new funds, do not restrict your choice to the same fund house. Look for other fund houses if good choices are not available in the same fund family. Switching in any case will be taxable as per the laws within the same fund house as well.

ICICI Prudential Emerging Star is a mid-cap fund and hence, is more volatile than an average diversified equity fund. The basic nature of the fund is such that it will outperform in booming markets and will fall harder during declines. While it has beaten the category from 2005 to 2007 when the going was good, it took a beating in the market crash last year. And unsurprisingly, it has risen sharply in the on-going bull rally.

If this is the only fund that you own, it is better that you shift to other diversified large-cap funds such as DSPBR Top 100, Reliance Regular Savings Equity, HDFC Top 200 and Sundaram BNP Paribas Select Focus.

Regarding ICICI Prudential Infrastructure, we would again advise you not to make this fund a core holding as it is a thematic fund. While its performance is good and it casts its lot with large-caps, you can allocate a small portion of your portfolio to this fund.

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