I am investing in IDFC Premier Equity for past 7 years and now its performance is lagging its peers and it is rated 3-stars at present. Is it necessary to switch out of the fund? Shifting the investment will create a situation that it will become lump sum investment in a new scheme.
- V Prabhakar
It is advisable to stay invested in this fund as its performance among equity funds remains good. The rating is only one of the parameters to be considered when investing in mutual funds.
IDFC Premier Equity has generated an annualised return of 23.9 per cent since launch and it is among the top 25 funds in the overall equity category when we consider five-year returns. Its one-year return of 60 per cent is also quite good seen in this context. True, if you consider the mid and small-cap category alone, this fund has lagged behind its peers in this market rally, as funds with a higher small cap stock exposure have floated to the top of the category. As our rating is based on relative returns, the fund's rating has dropped to 3 stars.
However, IDFC Premier Equity remains a good option for long-term investors because of its successful out-performance across market cycles, from 2006. The fund's policy of regulating large inflows during bull markets by shutting the fund, in order to ensure reasonable stock selection, is also an investor friendly policy, designed to improve the return experience of investors in the fund.
As to your query about switching your money, yes, switching all your investments from one fund to another would count as a lumpsum investment. If you would like to phase out your investment, you could use a systematic transfer plan which is a mode of transferring money from one fund to another in a phased manner through instalments.
However, if both the funds are equity oriented, this strategy will not protect you from the ups and downs of markets, as either your original fund or the new one, will certainly feel the impact of market volatility.
This article was originally published on January 15, 2015.
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