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Sell or Hold?

I had invested some money in Prudential ICICI Technology Fund in March 2000. Should I keep my money locked in this fund or is it the right time to do away with it?
-Amit Maheshwari

I had invested some money in Prudential ICICI Technology Fund in March 2000, just after its launch. The NAV at which I got the funds was Rs 10.20. When the market crashed, I bought a few more units of this fund at an NAV of Rs 5, so that my average became around Rs 8 per unit. In the last 5 years, it seems that all the funds have performed and grown, except this fund.

Could you please suggest, whether I should keep my money locked in this fund, expecting a good return in the long term (as market experts advocate long term investments) or is it the right time to do away with it? Also, why is this particular fund not able to grow?
-Amit Maheshwari

The story of your fund is no different from many other technology funds launched around the same time as Prudential ICICI Technology Fund, and all of them have suffered as a result of the tech bust that followed shortly afterwards.

A sector fund is always more risky than a diversified fund, and this is demonstrated by the performance of the technology funds, most of which were launched at a time when the technology sector was at the peak of its valuations.

You should not compare the returns of Prudential ICICI Technology Fund with just any other equity fund. Since it is a tech sector fund, you can only compare its performance with other tech sector funds. And within this category, Prudential ICICI Technology Fund has actually not done badly.

Out of the category of seven funds, this fund has been ranked second consistently on the basis of returns over 6-month, 1-year and 3-year horizon. In the last three years, the fund has delivered annualised returns of 34.05 per cent. Therefore, it would be inappropriate to say that the fund has not been able to grow.

Perhaps what is worrying you is the fact that the fund is quite volatile, as suggested by the highest standard deviation in the category, primarily because of the fact that the fund takes relatively higher exposure to mid- and small-cap stocks. To put simply, this fund is aggressive, but it rewards its investors for the risk it takes. You have not been able to profit from this fund because you entered when the tech sector had peaked and was on its way down.

We don't think investing more money in the fund simply to average out your per unit price was a good idea. More investments should follow only if you are bullish about the technology sector, and are willing to digest the wild swings that can happen in any sector fund.

Keep the following things in mind before deciding whether or not to exit the fund: your outlook on the technology sector, your total exposure to the technology sector including your investments in other funds, tax considerations and the level of anxiety that the volatility of a sector fund brings to you.

If you find that a very high proportion of your portfolio is invested in technology, then you might consider re-balancing your portfolio by reducing the weight of the tech sector.

For your future investments, in case you are not sure about a particular sector, then investing in that sector-specific fund makes no sense. It is always better to invest in a diversified equity fund and let the fund manager take the stock and sector specific calls.

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