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Balance of Power

I have invested in Reliance Diversified Power Sector fund a short while back. But with the share prices of power companies falling steeply, I'm worried about this investment. Should I quit or stay invested?

I have invested in Reliance Diversified Power Sector fund a short while back. But with the share prices of power companies falling steeply, I'm worried about this investment. Should I quit or stay invested? I can ideally hold this investment for 10 to 15 months.
Sunil Kumar

Reliance Diversified Power Sector Fund aims to invest in equity and fixed income securities of power and other associated companies. The fund has the liberty to balance in equity and debt in any proportion it desires. As it is a pure sectoral play, the investment universe of the scheme is limited to companies operating in the power sector, so the scope for diversification is also limited. However, the ability to stay out of equities gives it a powerful mechanism to protect itself from falling stock prices in the sector.

Since the fund's launch, the share prices of the companies in its equity portfolio have fallen around 18 per cent. However, only around 25 per cent of the assets are in equity and the rest in debt. This has kept the overall loss limited to around four per cent. Still, the fact remains that sectoral funds are risky. The future of this sector is heavily dependent on power sector reforms and can thus be impacted by political opposition to reforms (see our cover story in this issue). So, if you thoroughly understand the dynamics of this sector and already hold a portfolio of funds, this fund should act as kicker to your overall portfolio.



The Portfolio
  Holdings Weightage (%) 
  BHEL 7.7 
  Siemens 4.7 
  Crompton Greaves 4.0 
  Jindal Steel and Power 3.8 
  ABB 3.7 
  Asian Electronics 0.5 
  Apar Industries  0.2 
  KEC International 0.2 
  Total Equity 24.8 
  Call 75.2 
  Grand Total 100.0 
"As on May 31,2004"

   

However, in case this fund is your sole or main investment, you need to get out of it. The bulk of a fund portfolio must consist of mainstream income and diversified equity funds with sectorals playing a small supporting role only.

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