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Best Time to Buy Gold Was 5-Years Ago

Gold should be lying in one's locker so that in an emergency one can take it out and encash it

Dhirendra Kumar, CEO, Value Research is positive on Reliance as a stock and feels it would continue to remain one of the highest owned stocks in mutual fund portfolios. He said there are five Gold Exchange Traded Funds (Gold ETFs) and they are all alike. “The structure of such a fund is mandated in a manner that they all generate exactly the same amount of return so one can choose any one.” However, he does not feel one should invest in gold now just because gold prices are declining.

Excerpts from CNBC-TV18's exclusive interview with Dhirendra Kumar:

Reliance continues to be one of the highest owned stocks in most of the Mutual Fund portfolios currently and it has been experiencing a lot of pressure in the last two weeks or so; do you sense that going forward there maybe some sort of a re-allocation in terms of assets and Reliance may actually see a great mark down in most of these Mutual Fund portfolios?
I don't see a substantial change there because it is not only a matter of fund portfolio. Reliance has a dominant position in the Sensex and the Nifty. It would have a larger allocation had there been a larger float. I don't think it is going to get marked down. There could be a minor re-alignment.
I don't see a phasing out for Reliance for now. If Reliance accounts for 8% of total funds investment in stocks, it might come down to about 7.5%.

Which is the best Gold Fund to invest in for higher yields?
There are about five Gold Exchange Traded Funds (Gold ETFs) and they are all alike. The structure of such funds is mandated in a manner that they all generate exactly the same amount of return. The difference in return may be on the second decimal point and that is not material. One should just look at any of these five funds, choose any one of it be it by the name one likes or even a random pick will work. The difference between buying a mutual fund and a Gold ETF is that one requires a demat account.

Is this a good time to get into Gold ETFs? Considering the way the prices have fallen over a period of time.
No the fall per se itself is not a good reason to buy gold or a Gold ETF, which will be tracking or replicating the performance of the gold prices. Gold should be an insignificant part of one's portfolio. If one is trying to generate return by an opportunistic bet on gold, I think a great time to buy gold was three-years or two-years back. That is precisely the reason why one should not buy it because just a decline in the past two-months is not a reason good enough to buy gold.

As a percentage of portfolio, how much should gold be?
One should not look at gold as any kind of mainstream investment and have a fixed allocation to gold. I think it should be 0%. Gold should be lying in one's locker and in an emergency on can take it out and encash it.
As an investment, you can do without gold unless and until you have a reason to believe that it is an opportunistic bet and even as an opportunistic bet on some occasion, it should be 5-10%, not beyond that.

What are the prospects for DWS Investment Opportunity Fund?
This fund has come out of nowhere and it is proving to be an extremely impressive fund. Its stock selection has been able to deliver returns in a fairly crowded market. Among the 150-80 funds it has been able to generate a very high-quality, superior risk adjusted return. It has guarded the downside just as impressively since January.
So I would say that one should stick to it. It is not a fund, which has a 10-year history; it is not a fund, which has a five-year it is just about four-year old but not bad. The initial year was not very impressive.

Is it possible that the fund has given such performances because its size? Since it is not a large fund?
Yes, I think so. I think the size of the fund is material. Finding ten great stocks will have a far more meaningful impact on Rs 100 crore portfolio but the same ten stocks will have a relatively insignificant impact on Rs 4,000 crore portfolio. So there will be a problem when the fund gets big and the size could be a problem. It is too small a fund but not a tiny fund.
The problem in the equity funds space is that one will have to keep an eye after making investment. Earlier it was possible to pick two-three funds and invest and keep investing for a couple of years. But now one has to review individual investment more frequently.

You said that a portfolio should have anywhere between 3 to 5 funds for any investor who is starting out in mutual fund investing, how many of these funds should have corpuses below Rs 500 crore?
An asset base of lower than Rs 500 crore will be very useful for a mid-cap fund. So I think one should go by the objective that one should go by the fund managers track record, there are fund managers who are able to pick 5-7-8 compelling stocks at opportune time and have a meaningful impact at a smaller base. That impact gets lost in a larger fund, so if one is looking at a small- and mid-cap fund, I think the size is an important variable to look at.
When one is looking at a Flexi cap or a large cap fund, I don't think size is that material and I don't think it is that significant and impediment to the performance of the fund.

What's the outlook on Franklin Prima Plus Fund?
This fund has been very impressive and consistent. There are two more funds that are just as old; the Franklin Blue Chip fund and the Prima Fund, which does better than this fund. This fund used to get the least of attentions. So when the market is led by large caps; the blue chip does well, when it is led by the mid-caps the Prima does well but Franklin Prima Plus fund is a fund which combines both and is an excellent choice. This fund gets less attention because it is never at the top of the charts or at the bottom. It has a consistent performance and this is a fund where investors should keep investing over time and benefit from it.
It remains a very attractive fund and it shows a significant quality bias in its portfolio. So on occasion that could be a drag but I think it has kept away from many of the questionable things in the portfolio which not only prevented it from the upside in a roaring market but also has guided the downside well.

This is also one of the funds which stayed away from the real estate pack while the stocks there were advancing very rapidly, so does it also on occasion's loose out on performances like these which we have seen from the real estate companies like Unitech?
This fund kept away from the sector through the whole big leap we saw last year and this fund never went ballistic. Fund managers went on buying some fairly expensive stocks in the sector, which I think would have to be in their disadvantage but yes it is a missed opportunity when you keep out of the fashionable sector that does very well.