As a first time investor, I invested Rs 25,000 in JM Balanced mutual fund (Growth) in January 2008. I chose an STP into JM Basic fund for Rs 1,000 month. The money was to be invested in 25 installments. This investment has not given any profit in last five years. Please advise if I should continue this investment to recover my capital or switch to a better performing fund.
-Ashutosh
Not only your choice of funds, the approach of transferring investment from a balanced fund to an equity fund is also not right. You invested a lump sum in a balanced fund which predominantly invests in equity. If one has a lump sum, the ideal way to invest systematically is to put it in an ultra short-term or short-term fund and then opt for STP into a balanced fund.
Since you opted for an STP from JM Balanced, all your investments will be in JM Basic at present. You should certainly exit the fund and invest in a good performing equity diversified fund from the Large- and Mid-cap category or opt for a Balanced fund. JM Basic has performed very badly during the market downturn. Apart from being a thematic fund, it has been heavy on mid- and small-cap stocks. This has resulted in volatile returns of the fund. It has increased its large-cap allocation significantly since 2011.
The fund delivered good returns during market upturns but always hit the rock bottom in market turmoil, resulting in poor performance over long-term. It is the worst performing open-ended equity fund over seven-year period with a negative return of around four per cent (as on April 26, 2013).
This article was originally published on May 03, 2013.
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