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Themes Are Risky

Investing in thematic funds is riding on an idea that may or may not take off, making them highly risky…

I had invested in Sundaram Capex Opportunities and Magnum Comma in Mar 2008 for Rs 25,000 each. I find that the funds are not performing. Please advise if I should continue to hold them or sell them?
- Sowmya K

Schemes  Category  Rating  3-yrs ret (%)  5-yrs ret (%)
Sundaram Capex Opportunities Equity: Others Not Rated -2.05 7.9
Magnum Comma Equity: Others Not Rated 2.84 10.94
Returns as on May 26, 2011 Ratings as on April 30, 2011

Both the funds that you have invested in are thematic. While Sundaram Capex Opportunities predominantly invests in companies engaged in the capital goods sector. Magnum Comma invests in companies engaged in the commodity business within oil & gas, metals, materials and agriculture. When you invest in a thematic fund, you are trying to ride an idea which may or may not deliver. These traits make thematic funds suitable for investors who have a high risk appetite. While their return potential is high, so is their potential risk. If you get the timing of entry or exit wrong, you could end up performing worse than an investor in a diversified equity fund.

Both the funds that you have not been performing favourably and you should consider cutting your losses in them and exit them. Remember, if this was your only investment, it was not the best choice to invest in a thematic fund. You should consider building the core of your portfolio with a large- and large- and mid-cap fund and have less than 10 per cent allocation to such funds in your overall portfolio.

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