I had purchased UTI Petro at 20.36. Seeing the way it has dropped (over 25%) should I stay on or cut my losses? Please advice.
Anup Mathew
Sector specific funds represent the highest risk-return potential in the mutual fund universe. And it is not necessary that taking the highest risk will always lead to highest returns. The way the NAV of this fund has fallen demonstrates this principle.
The question of staying invested or cutting losses depends on what is the reason for investing in this fund. If you put you money here because your portfolio was deficient in oil and gas stocks and this deficiency remains then there is no reason for you to exit this fund. The investment decision has been based on a certain need and as long as the need remains there does not seem to be any reason to change course.
Another way to look at these funds depends on your level of understanding. If you know the sector dynamics and feel that you know where these stocks are headed a sector fund gives you exposure to this basket of stocks in an affordable manner. But it is essential that you know what you are getting into. Whatever be the reason for your investing in these funds they should only make up a small part of your portfolio, say from 5 to 15 per cent.
Another basic point to keep in mind is that equity investing and more so fund investing is for the long run and every 20 per cent up or 20 per cent down cannot be the basis for your decision to redeem or for that matter to invest.
On the other hand if you were looking to make a quick buck then maybe it would be best to exit when your losses are still relatively bearable. But this is a decision, which only you can take. At this time it would be worthwhile to remember the quickest way to double your money is to fold it and put it back in your pocket. Speculating in a sector fund is very dangerous business and we would not recommend it to anyone.
This article was originally published on July 01, 2004.
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