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I had invested in HSBC Equity Fund but I do not see this one performing well compared to its peers. Should I redeem and invest in better ones? Please advise.

I had invested Rs 20,000 in HSBC Equity fund almost eight months back. I do not see this one performing well compared to its peers like Reliance Growth or Magnum Contra. Should I redeem and invest in better ones? Please advise.

HSBC Equity had a dream start in December 2002, and it consistently delivered good returns for a number of months. However, the fund has not performed that well in the recent past. In fact, your concerns are understandable as it has lagged the category since the time you invested in the fund. For the quarter ended June 2005, the fund has missed the category average by far, delivering only 1.42 per cent returns against an average peer's 7.62 per cent.

Since the start of 2005, the fund's calls in sectors like automobile and metals seems to have gone wrong, which have hit the fund's returns. Another reason that could have partly affected the fund's performance is that it has always maintained a large-cap dominated portfolio, because of which it has lagged behind many of the mid-cap oriented funds which have performed on the back of a tremendous rally in mid-cap stocks in the recent past.

In fact, HSBC Equity is not the only fund to have under-performed. Many other funds, which have a strong large-cap orientation have failed to beat the category average in the recent months.

This brings out another fact that apart from the quality of the management, a fund's performance also depends upon the general market conditions, and if the large-caps have not been performing as well as the mid-caps, then there is little a large-cap fund can do. Moreover, eight months is not time enough to think about exiting a fund, unless the fund has actually done very badly.

As an investor, all you need to do is to allocate your funds across different asset classes and invest regularly. Within equities, broadly decide what kind of allocation you want to maintain in large-caps and mid-caps. Diversification will ensure that as and when a particular asset class performs, you benefit from it, while avoiding heavy losses if the situation is the opposite.

Do not always run after the top-performing funds at any given point of time, rather look for long-term winners whose investment style suits you. As far as Reliance Growth and Magnum Contra are concerned, note that both are very different type of funds. While Reliance Growth is pre-dominantly a mid-cap fund, Magnum Contra, on the other hand picks stocks which are out of favour, and are hence undervalued.

Following a contrarian strategy could mean that the fund may not deliver good return for long stretches till the time its holdings remain out of favour. But such stocks will perform when they start finding favour with the markets again.

Therefore, invest only if you feel reasonably convinced with the investment strategy of a fund, rather than just looking at recent performance.

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