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Stay Away From New Funds

In a CNBC-TV18 interview, VR CEO Dhirendra Kumar advises investors to invest in only proven funds

At a time when almost all equity funds are giving disappointing returns, Dhirendra Kumar, CEO of Value Research tells what should a Mutual Fund investor do and gives his take on various funds. According to him, an investor should stay away from new funds till they actually mature. "The investor should stay clear of relatively new fund till they are at least three-years old."
Here is a verbatim transcript of the interview with Dhirendra Kumar on CNBC-TV18. Also watch the accompanying video.

What is your opinion on Reliance Vision Fund?
This is a fund which deserves some more time. Every equity fund has been disappointing. It was an excellent fund, which has become an average fund but it’s not a horrible fund. It has become average at a point when the market has declined. This was almost like a flagship fund, Reliance Mutual Fund, Reliance Asset Management Company used to show this fund and get money. It owes its success to the performance of Reliance Vision and Reliance Growth. When old funds with a dedicated investor following, becomes an average fund from a great fund, it is disappointing, but that does not mean it is a horrible fund.
Reliance Vision is becoming an average fund at a point when the market decline has been more disappointing. Have some patience and take a call in about three-six months time. In a declining market it used to guard assets much better, it has not been able to do this since January. It has fallen just as bad as more volatile fund, which was not expected. In fact Reliance Growth is doing much better and it is expected that Reliance Vision will prove to be little more stable.
Should one shift from Reliance Vision to Reliance Growth?
It will be a worthwhile switch because Reliance Growth is showing no weakness, and moving that money will not be very taxing. I do not think in past one year one will be sitting on any meaningful capital gains. So there is no penalisation, constrain in taking this decision. If market turns around in six months to one year or one and half years time then one will be much better off with Reliance Growth than Reliance Vision.

What is your take on AIG Indian Equity Fund?
AIG Indian Equity Fund has proved to be an average fund so far. It has declined just as much as most other equity funds and participated reasonably in the equity funds. If the investor is getting concerned about the news about AIG, I don’t think there is any concern on that front.
On a standalone basis, if the investor is evaluating the fund it is a one-year fund. It is little premature, one-year time is not enough to take a call on a fund but there is no problem in moving out. Investor can consider moving out to a proven fund with a reasonable and superior history.
Your advice to investors at this point
I would urge most investors to keep away from new fund till they actually mature. Most of the time investors are tempted that here is a big opportunity and they have to participate. The investor should stay clear of relatively new fund till they are at least three-years old. Even three-years is not enough sometimes because you can have a phase when in the three-years, there could be just one phase of the market.
A fund has to go through both phases of the market; the up cycle and the down cycle for an investor to understand. How a fund does for most common investor is important to be known. It is important for a fund to be able to make money in a rising market and a fund is able to better protect money in a falling market. One can’t get to see this in just one-year, six-months, two-years time.

Ok and what about the DWS Investment Opportunity Fund?
Anybody who invested in January can look with a hindsight that it was a bad timing for any investment made in equity, whether it be a good fund or a bad fund. The good thing is that DWS Investment Opportunity is a good fund, it has fallen as much as most other funds, a little less in fact. If the investor invested at the peak, he/she might be very disappointed. So, it is looking as more disappointing but I will recommend this fund as an investment. The investor should be guided more by needs. If one has to invest more money, one can continue investing more money. If one needs money in four-six months, one should pullout this money because I don’t see a revival of the market in six-months, one-year or one and a half year either.

On what parameters should one select a fund?
One should look for the history. If you look at DWS Investment Opportunity on most logical yardsticks, this fund will qualify. This fund has a good history and is evenly spread. It is a diversified fund and has sustained performance on a risk adjusted basis. It has given decent performance; decent return as well. So on those yardsticks; it still qualifies as a good fund.
The problem that the investor could face is reconciling with a 40% loss on a one-time investment. To prevent such situations one should be investing regularly not lump-sum in such investments.
For investing in equity, first checkpoint should be, are you investing for few years? The most important thing is one should not invest at one time and at one go because these kind of situations can arise with equity investments all the time. You see 15-20-25% decline even in a roaring bull market and that could be a test of patience and test of your nerve the moment you invest in equity. To guard that you cannot do anything about the market, the index but you can certainly do something about the way you invest.
Midcap funds are difficult to manage when they become very large. They are constrained by liquidity issues not in a roaring bull market but in a bear phase like this. They certainly face liquidity issues and concerns, which is difficult to address and handle.

What would be your view on Tata Indo Global Infra Fund, NFO for the investors?
Investors should exit this fund for a different reason. Infrastructure is not an opportune thing to stick around with because of the phase of market we are into. It always helps to diversify. Many of these funds are invested all over the world. Some of the markets and themes might still work. So, for most investors the only mantra to follow is ‘diversify’ and global diversification could be helpful. It is a fund, which invests only 35% of its money through a fund or a fund vehicle. But the rationale to get out of this fund is that it is an infrastructure fund. It is theme, which is unlikely to work with India or elsewhere in the immediate future.

Should people buy insurance product mixed with SIP plans offered by Birla Sun Life and Reliance Mutual Fund?
It is an attractive thing. You are getting a term cover for free. The product or the term cover for free is offered by two fund families, which offer a reasonable range of good equity funds. So, if one has to get into equities steadily over time then these fund companies offer a good choice. It comes for free so get it and you do not have to put a lot of money upfront to buy it. So, getting a meaningful thing for free is a good idea and people should consider it. But, I do not think it’s a missed opportunity because the term cover which you get even when it comes to an end, you are not at a significant loss because term cover for a lot of people comes as a cheap avenue but not too many investors go for it. Anyway you will get a substitute for a very low cost. For somebody who is getting this benefit, it is almost like getting something worth Rs 2,500 per annum for free.
If I were to choose two funds, I would choose Birla Sun Life Equity and Reliance Growth. Reliance despite having too many equity funds, the choice of good equity fund is getting limited.