Don't Invest Heavily In Thematic Funds

Early 2008, I invested Rs 50,000 in HSBC Equity. The NAV at that point of time was 42.33. Should I hold on to this fund? I also bought 2,210 units of ICICI Prudential Infrastructure Fund at an NAV of 22.62. Both times, I opted for the dividend option. Should I sell?
- Dipak Chakraborty

You invested Rs 1 lakh in just two funds, and that too in a lump-sum, not via a Systematic Investment Plan (SIP). There you have erred. Moreover, if these are the only investments you have, it is certainly not wise to have half your equity portfolio in a thematic fund.

HSBC Equity had a great run in 2003 and 2004. Ever since 2005 it has turned out to be an average player barring 2008 when it was a top quartile performer and able to contain the downside when the market crashed. Other better options are Canara Robeco Equity Diversified, HDFC Top 200 and IDFC Imperial Equity Plan A, the latter more of a large-cap offering, while the other two have a large- and mid-cap tilt.

ICICI Prudential Infrastructure is a thematic offering. Hence this fund will fare according to the way the market responds to the theme. In the recent past, the Infrastructure theme has not been doing fabulously well. Having said that, ICICI Prudential Infrastructure is one of the better options in the category. Its current large-cap tilt is probably what is hindering higher returns. But if you are a believer in this theme, stick to the fund.

Scheme    Div. Eq.    Star    Ret (% p.a.)        Classification    Rating    1-yr    3-yr HSBC Equity   Large & Mid Cap   «««   17.52   9.29 Canara Robeco Eq Div   Large & Mid Cap   ««««   36.57   16.20 HDFC Top 200   Large & Mid Cap   «««««   33.19   17.53 IDFC Imperial Equity Plan A   Large Cap   ««««   19.98   14.27 Rating & Returns as on June 15, 2010 with reference to the growth option

This article was originally published on June 16, 2010.