Which equity-fund category can I do without? | Value Research Dhirendra Kumar talks about why sectoral funds don't make much sense to be a part of your portfolio.
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Which equity-fund category can I do without?

Dhirendra Kumar talks about why sectoral funds don't make much sense to be a part of your portfolio.

Owing to the current Covid crisis, my salary has been reduced by 25 per cent. Currently, I have monthly SIPs worth Rs 1.55 lakh spread across small caps, multi caps, large caps and sectoral funds. I want to reduce the amount of my SIP to Rs 1.30 lakh. Which funds should I pause? I have an investment horizon of more than 10 years and have been investing in equity funds for the past 10 years.
- Sunil Kumar

Since you want to trim your portfolio, I would suggest that you do away with sectoral funds from your SIP allocation. This is because sectoral funds are concentrated bets meant for targeted investments in any particular sector that may appear to be attractive but may not be available for investment in some other category of funds. Having a diversified portfolio with investments across categories, such as multi caps, mid caps, small caps and contra funds, leaves no importance of having sectoral funds in your portfolio, as these categories cover pretty much all the booming sectors.

Being a seasoned investor of equity funds, you understand that the markets tend to reward investors in the long term. However, you should get rid of the funds from your portfolio that have not been performing well for a long time now. While assessing the performance of your funds, don't look at their short-term performance such as the funds that have not done well in the past one-two years. Also, try to assess if it is the fund that is not doing well or is it the entire category. For instance, you may be bearing losses in your small-cap fund, but that does not necessarily mean that the fund is a non-performer. The entire category has not done well for the past two-three years. So, compare the performance of your fund with its peers and if the fund has been consistently underperforming as compared to its peers in the category, it is time to get rid of it.

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