VR Logo

Select Funds Carefully

Build a portfolio of mutual funds that have a proven track record & a high star ratings…

I am investing Rs 2,000 as SIP since February 2010 in BSL Tax Relief 96, HDFC Top 200, Reliance Diversified Power Sector, Magnum Tax Gain and Sundaram Select Midcap. I am unhappy with the performance of these funds; can you suggest a remedy?
- Venkat

Schemes  Category  Rating  3-yrs ret (%)  5-yrs ret (%)
BSL Tax Relief 96 Tax Planning *** 5.16 13.99
HDFC Top 200 Large & Mid Cap ***** 15.26 20.46
Reliance Diversified Power Sector Retail Equity: Others Not Rated 4.14 24.49
Magnum Taxgain Tax Planning *** 5.02 13.67
Sundaram Select Midcap Mid & Small Cap **** 14.98 16.99
Returns as on June 17, 2011 Ratings as on May 31, 2011

Your approach towards building a diversified fund portfolio started in the right earnest with tax savings funds, a large- and mid-cap fund and a mid- and small-cap fund. However, the presence of a sector specific fund such as Reliance Diversified Power is a bit baffling. Being a fund with narrow investment mandate, it tends to be volatile, which is reflected in its performance.

Likewise, your observation on the poor performance of some of the funds that you have is right. For instance both the tax planning funds are faring poorly compared to better performing funds in its category, but in HDFC Top 200 and Sundaram Select Midcap you have two good funds. You should continue investing in these two funds and exit Reliance Diversified Power Sector Fund.

There is little that you can do with the investments in BSL Tax Relief 96 and Magnum Taxgain considering both the funds are just over a year old and still have about two years to go for the mandatory three-year lock-in that tax planning mutual funds need to follow. There is a lesson that you can draw from this investment; spend time when selecting funds. Look for a fund with a performance history and track record before investing in them. The Value Research fund rating is a good starting point, wherein a high star rating indicates a fund that performs consistently.

Post Your Query