Sector funds are a risky proposition | Value Research If your sectoral investments have been continuously lagging behind, it’s to shift
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Sector funds are a risky proposition

If your sectoral investments have been continuously lagging behind, it’s to shift

I regret my lump sum investments in Reliance Infrastructure and SBI PSU sectoral funds. I invested in theses funds at the time of NFO in July 2009 and July 2010 respectively. Their current respective NAVs are 5.5889 and 7.5889. The performance of these funds has not improved for a long time now. I am ready to wait for another six months. Also, I have decided to start SIP for next six months to bring down the cost price with an expectation to exit when NAV crosses the cost price. I may have to pay short term capital gain tax but at least I recover my capital. Please advice. -Rishabh Shah

It will be in your best interest to withdraw your investments at whatever price they are available to you. Making more SIPs in the same fund will only add to your losses as the outlook for the sectors remain weak. Also, you cannot predict that the these funds will make gains, their value could depreciate even more and magnify your losses. You have hit your portfolio real hard with lump sum investments in sectoral funds. Lump sum investments in mutual funds catch market peaks, and either suffer huge losses or make big gains. Investing in a thematic or sector fund is risky because of the returns depend on performance of a single sector.

The infrastructure sector is not expected to do well because of decelerating economic growth, high borrowing costs and delays in securing regulatory approvals. The government’s inability to push reforms has hit many infrastructure projects in India, hurting the ability of their promoters to pay back creditors and vendors. Investing in PSUs is not a good idea either, as most of them are suffering because of stringent environmental clearance norms and poor availability of raw materials. Lack of power reforms and under-recoveries from state electricity boards has hit power companies. Government's dominant ownership in itself is a big risk.

One can explore sectoral funds only if one is well-versed with investing and has a diversified mutual fund portfolio that lacks weightage in a specific sector or theme. You should consider investing in a diversified equity fund with a wide investment mandate. Sector and thematic allocation should not be high and one should give more than 10 per cent allocation to these funds.

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