I am a housewife and have invested Rs 55,000 in three schemes of Sundaram Mutual Fund. The break-up of my portfolio is like this: Rs 15,000 each in Sundaram Select Focus and Sundaram Select Midcap Fund at NAV of Rs 10 and Rs 25,000 in the Income Plus Fund, at an NAV of Rs 10.13. Should I buy more, hold or sell these schemes?
Padma Dani, via e-mail
What should one do next is the question that plagues every investor after making an investment. Though a fair question, it is difficult to predict with 100 per cent accuracy as to when you should sell, buy more or for how long you should hold on to your investment. To begin with, it is imperative that you know what you want. All three funds in your kitty are not the usual run-of-the-mill products. Belonging to a niche category these funds' role in a long-term investment portfolio should be clearly defined.
Launched barely eight months ago, it is too early to make any judgement about these schemes. All the same an investor ought to be aware of his or her investment objective. Sundaram Select Focus fund is an aggressive growth fund that invests in not more than 20 stocks. The fund will try to deliver superior returns by momentum investing in select large-cap stocks.
Positioned for investors seeking higher returns than a diversified equity fund, Sundaram Select Focus fund would obviously be taking higher risks. The fund has no explicit sector exposure limits and it is thus more volatile. Your investments in this particular scheme, according to the Value Research Portfolio Tracker (see www.valueresearchonline.com), have grown by 17 per cent, as on May 12, 2003.
Sundaram Select Midcap Fund invests predominantly in medium-sized companies by their market cap. Such stocks are usually more volatile and less liquid than large-cap stocks. Here, your investment of Rs 15,000 is worth Rs 16,860, as on May 12, 2003, which translates into a return of 12.44 per cent.
As for Sundaram Income Plus, it invests primarily in AA debt instruments. These are slightly riskier than AAA papers, which are the highest-rated debt instruments. This means that the risk of default for AA papers is slightly more. To compensate for the higher risk, these instruments give out higher interest. Theoretically, this fund should be less volatile than a plain-vanilla income fund as it has a lower exposure to gilts, which are highly volatile. As on May 12, 2003, your investment of Rs 25,000 here is worth Rs 26,999 (in other words a gain of 11.53 per cent). Overall, the value of the Rs 55,000 investment that you made in the three Sundaram schemes stands at Rs 58,292, as on February 21, 2003.
After looking at these schemes it becomes clear that your investments are spread across niche products. While these funds have a place in your portfolio, the exposure should be limited. Within equities, the core of your portfolio should consist of diversified equity funds, which have a good track record.
Similarly, on the income side, a medium-term debt fund should form the base of all your investments. Once you have such a portfolio you can afford to sit back and relax and allow stock markets to take over. At the end of the day, mutual fund investing is all about watching your capital appreciate patiently over a period of time.