Excerpts from CNBC-TV18's exclusive interview with Dhirendra Kumar:
What’s the advice you would give the investor because we have seen a lot of volatility in prices; just a few days back commodities were ruling the roost in terms of the kind of price hikes we were seeing, but now there has been a step back, a considerable one you think it poses an opportunity to step into an Exchange Traded Fund (ETF)?
No, I think the great time to buy gold was four years back; gold cannot justify being a substantial part of any long-term portfolio. Gold as an investment form cannot be a meaningful part of any portfolio simply because the way to own gold is in the physical form; there will be barriers to the price to any substantial turnaround and rise simply because it has gone up, so the real demand for gold has dampened quite a bit because of the price rise.
But what the investor is asking is - can he invest in a gold ETF or can he invest in a gold fund, which periodically is possible. So despite all these things, gold can only be opportunistic by on occasion and I don’t think it is a great time to buy a gold now. But if he wants to buy, he can surely buy an ETF with Rs 5,000-3,000 a month, for which he will need a demat account.
Which are the gold funds, which he can look at? Any recommendations?
UTI, Benchmark and Kotak have one each and performance of all gold ETFs is exactly the same. He should not get confused with the two other gold funds - DSP Merrill Lynch World Gold Fund and AIG World Gold Fund and should not consider that because that is not a pure gold play. Those two funds invest in stocks, which are into gold mining and stocks companies in related business. So he should clearly look only at gold ETF, where the underlying asset is the physical holding of gold and he should just buy any of those because there is no difference in the performance of these.
An investor wants to start with an initial investment of about a Rs 1,000 and then put in a systematic investment plan for about Rs 100 a month, which is the best fund that he should put this amount in?
I am sorry, for him Rs 100 a month may not be possible because the minimum which a few funds demand is Rs 250 a month for an SIP, so he will have to wait for a while. But I think his approach to savings is correct and till he is able to save as much Rs 500 or Rs 250 a month that should not be a barrier may be to begin with, he should just get started with post office recurring deposit.
Is there no option because a student may not be able to invest Rs 250?
It can’t be Rs 100; there is a possibility that Reliance Mutual Fund provides a mechanism whereby you can have a five year term, a Rs 100 investment is possible.
On Birla Sun Life Infrastructure Fund:
I am very optimistic about most infrastructure funds over the next four to five years. Of course, the next two years will never be like the past one or two years. So one should prepare for short-term disappointment and the reason to be very optimistic over the next four to five years.
The recommendation that you would give out a sectoral play to investors at large there?
Yes, I would strongly suggest that any investor who is in infrastructure funds and some of the investors will still be sitting on profit, but if they do not have the four to five years, they should exit such funds. The should stay invested only if they have those four to five years because the next one to two years will be difficult for such funds. It is only going to be disappointing if you don’t have time on your side.
How can one invest Rs 1,000 in a good equity fund with a Systematic Investment Plan (SIP) Option. What is a good fund?
I would suggest any fund with over five-year history and it is in a top quartile on a five-year basis and at least in three of the five years, it should have been in the top quartile. I would say a Kotak 30 or DSP Merrill Lynch Equity Fund or a Franklin India Prima Plus or a Magnum Contra these will qualify or HDFC Top 200. He should choose one or two of these funds and should invest regularly.
Is it possible for him to choose one largecap equity diversified fund and probably one sectoral fund to give him some kind of a kicker in his portfolio?
I would suggest that most such investors should avoid trying to find the kicker themselves; somebody getting started assuming with that temptation you run the risk of chasing performance with a small part of your money. That derails your savings plan.
I would suggest if you are looking at a kicker, then choose an aggressive equity fund than a diversified equity fund, but don’t add sectoral funds yourself because then you end up chasing past performance in a manner that you buy high and you end up selling low. Think of somebody who bought a gold fund four-months ago and today he will be sitting on about 15% losses and that will be the case somebody who bought an infrastructure fund with a short-term horizon in last quarter of 2007 and now getting restless. I think thematic funds and sectoral funds could be a very dangerous thing for most investors not clued into and not having the desired timeframe in their mind.
On Fidelity International Opportunity Fund:
This fund is doing relatively okay and it is very difficult to evaluate, but this fund is an opportunity fund and also has some international allocation. So I think it is structured in a very nice way, this fund has done reasonably okay on the downside. But I think it is too brief a period, I think the reason to be very optimistic about this fund is overweight on financial services and so are many other good funds, so it seems to be reasonably well to participate as and when the market turns around.
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