Exit a fund that continuously falls on the star ratings
10-Feb-2011 •Research Desk
I had invested Rs 16,000 in Sundaram Select Focus (G) on behalf of my 4 month old daughter in August 2009. The current value is Rs 20,713. However, in the star rating it has dropped to 1 star. Please let me know that should I remain invested or book profits and invest the amount in some other fund. I also had started 2 SIPs of Rs 2,000 each on behalf of my minor daughter in HDFC Top 200 (D) and Reliance Regular Savings Equity (D) in May 2010. Please let me how much more should I invest and in which funds to reach a target of Rs 1 crore for my daughter’s higher education and marriage
— Vareen Ray
This is a large-cap fund that invests in few select stocks. This fund was a great performer in 2006 and 2007 and has been largely living on its past laurels. Being invested in select stocks has its positives and negatives; the state of the market today is such that the selectivity is acting as a disadvantage for this fund’s performance, unlike in the past when it worked. A large-cap fund is expected to at least match its benchmark if not beat it considerably. The star rating is a good risk-adjusted measure to evaluate a fund and does not overnight change its ratings. A fund that continuously underperforms starts to lose the ratings and is an indication to consider exit as is the case with this fund. If you have gained from your investment, you will be better of investing in other large-cap funds such as Franklin India Bluechip or IDFC Imperial Equity Plan A.
HDFC Top 200, a large- and mid-cap fund and Reliance Regular Savings Equity fund, a multi-cap fund are a good choice. Both have a proven track record and history for you to remain invested. If the objective is long-term savings, you will be better with the growth option in these funds than dividend payout.
By investing Rs 15,000 a month for 15 years in a fund that earns 15 per cent, you can expect to reach your investment goal of Rs 1 crore. By investing in mutual funds regularly your target is not unachievable. However, do remember to check on the performance of your investments regularly.