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Avoiding Risky Funds

Thematic & sector funds are volatile & should hold only 15-20 per cent of a portfolio…

I invested Rs 10,000 in Reliance Natural Resources Fund, Rs 15,000 in HDFC Infrastructure Fund and Rs 10,000 in Tata Indo Global Infrastructure Fund. What is the future of my funds? I want to further invest Rs 4,000 every month, which fund should I select?Sneha Arora

Scheme  Category  Rating  3-yrs Ret  5-yrs Ret
HDFC Infrastructure Infrastructure **** 10.78 -
Reliance Natural Res Equity: Others Not Rated 4.53 -
Tata IndoGlobal Infra Infrastructure ** 0.9 -
Retuen as on April 30, 2011, Rating as on July, 2011

Your fund selection is shocking.
You have invested in three thematic funds, which is very risky. What was the reason? Do you really believe in the infrastructure space, for instance? Was your investment logic sound when you decided to invest in such funds?
To top it all, you invested in all at one go, which instantly makes you a hostage to market timing.
All the three funds that you have selected are just over three years old. Neither one of them has been an outstanding performer. That should not be surprising since such funds’ performances are linked to the fortues of the sector or sectors they represent.
Thematic and sector funds are volatile and more risky than regular equity diversified funds. It is for this reason that we recommend no more than 15-20 per cent of an individual’s equity portfolio into such schemes. If you are not in dire need of money, hold on to these investments and sell when you get an appreciation on your investments. For your further investments, it is good that you are opting for the systematic investment route. Since you want to invest Rs 4,000, we suggest two large-cap funds. Take you pick from IDFC Imperial Equity, Franklin India Bluechip and DSPBR Top 100 Equity.

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