VR Logo

Sailing Through Technology Upheavals

As technology funds perk up again, it is time to strategise your action plan for this mercurial set of funds to focus on your goals than just riding through their wild swings.

If you had written-off your technology funds as they tool a long bath, their recent gains brings little cheer to you. Of course, they are still way too far to wipe your losses still down 57 per cent from their previous year levels. But in the past one-month, they have gained sharply – 16.6 per cent. These racy funds are just not for everybody. After giving all the pain, they are up 16.6 percent in 30-days flat, while the market has not gone anywhere and the return equals what a great bond fund will have to struggle to earn in a full calendar year.

And this gain could have been higher at nearly 20 per cent if one does not take into account the cash-heavy funds of Birla IT, Chola Freedom Technology and SBI's Magnum IT. With cash holding in excess of 60 per cent (barring Birla IT, which is at 40%), these funds have been caught on the wrong foot and severely under-performed the category. For instance, Magnum IT monthly return is at 7.4 per cent while Chola Freedom Technology is a shade better at 8.5 per cent. On the other funds have given returns in excess of 20 per cent with UTI Software leading the pack at 29 per cent.

But don't mistake this gain with any technology sector turnaround. Technology funds move sharply, with big gains and losses in a brief period. And going by the rock bottom NAV of the technology funds, it is a tough call as to how and when, if at all these funds will bring cheers to investors. But such sharp gains do ignite hope that they can. And technology stocks should be the first to benefit when the global economy finds its feet again – businesses that buy technology (and most of them do) will again start spending as they rush for a speedy implementation of projects and acquire a competitive advantage. Anyway, technological innovations continue to be the backbone for our daily lives and critical infrastructure. Hence, these blips in the last 18 months cannot overshadow the sector's promising prospects in the long-term.

Action Plan:
If you already own technology funds, check if you still believe in technology stocks and ensure that technology funds you own together are a small part of your portfolio to your comfort. If you are contemplating new investment in technology, Don't bet on these racy funds simply because technology stocks and funds have gone up in a brief period. Besides being a tech believer and limited role in your overall portfolio, make sure you have the stomach for the wild swings, you have a long investment horizon and you will participate gradually by averaging your purchases. This will greatly reduce the anxiety, the enemy of any well thought out investment plan.

Fund Update:
For the week ended November 9, 2001, the markets gained mere 27 points on both the BSE Sensex and 21 points on the broad-based BSE National Index. The top gainers for the week were -- Sun F&C Resurgent India Equity Fund (6.90%), Pioneer ITI Prima (5.58%) and Libra Taxshield '96 (5.29%). Despite the market in a dull mode, every fund gained during the week.