Sector funds are suited to seasoned investors who have a high risk appetite
11-Apr-2011 •Research Desk
Could you suggest one good tax saver mutual fund to invest in? In the last couple of years I have invested in Sundaram Taxsaver, Canara Robeco Equity Tax Saver and SBI Magnum Taxgain. I would also like to invest in an aggressive fund which is not a tax saver and am planning to invest in Reliance Banking Retail through SIP option. Is it a good choice?
-- Asitesh Sinha
Tax saving mutual funds blend tax savings and growth and have a three-year lock-in. Your selection of the funds is mixed; Canara Robeco Equity Tax Saver has performed far better than the other two that you have selected over a three- and five-year period. If you are looking for fresh investment in tax saving mutual funds; you should consider increasing your investments in this fund than looking for yet another fund.
The list of top 10 best-performing funds is most likely to find more sector and thematic funds than those from other categories. This does make the case for investing in these funds, however a closer look at the performance of these funds also emphasises the fact that timing is of utmost importance when investing in them. For instance, Reliance Banking Fund has had a stupendous run since the market lows since October 2008, but the same cannot be said of other funds.
In case of a diversified fund, it is the fund manager who takes the calls regarding when to enter or exit a particular theme or sector, based on its outlook. However, this job is left to the investor.
If you have a well-diversified portfolio and experience in investing, you should consider allocating up to 10 per cent of their portfolio into funds belonging to these two categories. These funds are essentially for investors who have a high risk appetite, if you can stomach the volatility; do go for Reliance Banking fund but remember to track the fund and sector's performance closely to gain the most from this investment.