Thematic funds are volatile and risky; invest only if you believe in them
07-Mar-2011 •Research Desk
I have invested Rs 2 lakh in Sundaram Energy Opportunities Fund in December 2007 and till date there has been no appreciation in the fund. If I switch from this fund, I will lose all the probable future profits. I am confused about what to do with this fund. Should I stay on in this fund or switch at a loss?
Looking at the date of your purchase, the timing could not have been worse. You bought into this fund in December 2007 when the market was at the peak of the bull run. The BSE Oil & Gas index touched a high of 13,400.17 that month and BSE Power, 4,559.92.
On January 31, 2011, the two indices closed at 9,481.91 and 2,744.20, respectively. It’s obvious that this sector has been badly beaten down and the fund will naturally reflect that.
Since you bought it during the new fund offering (NFO) period, you would have purchased each unit for Rs 10. The net asset value (NAV) on January 31, 2011 was Rs 7.84.
We have to ask you to revisit the reason why you purchased this fund in the first place.
Sundaram Energy Opportunities invests in the shares of energy and energy-related companies. Do you want to exit this fund because you no longer believe in this theme? Or were you simply unaware at the time of investing that this is a thematic fund and want to exit because of its poor performance? We strongly believe it is the latter. If that be the case, then cut your losses and exit the fund. Now that it has turned open ended (it was a 3-year closed-end fund at the time of the NFO), you will not have to pay an exit load.
There are three lessons you can learn from this experience:
• Avoid thematic funds unless you really do believe in the theme. If you do believe in them, be prepared for a volatile ride.
• Do not invest in an NFO unless it is a fund that adds value to your portfolio and no similar one exists in the market.
• Do not invest at one go. Always invest via a systematic investment plan (SIP) so that you are never held hostage to market timing.