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Mutual Fund Corner: My mutual funds are in red. Should I hold on or sell them?

Mutual Fund Corner: My mutual funds are in red. Should I hold on or sell them?

Mutual Fund Corner: My mutual funds are in red. Should I hold on or sell them?
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By CNBC-TV18 Mar 7, 2019 8:24:11 PM IST (Published)

Get all your mutual fund related queries answered by our expert, Himanshu Srivastava, on our show Mutual Fund Corner.

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Get all your mutual fund related queries answered by our expert, Himanshu Srivastava, senior analyst manager research, Morningstar Investment Advisers India, on our show Mutual Fund Corner.

Q: 31-year-old Vijay Krishna writes to us from Saudi Arabia. Most of my investments are in mutual funds and they are in loss now. I have invested in Aditya Birla Pure Value Fund (-28 percent), L&T Emerging India Business Fund (-15 percent), Reliance Small Cap Fund (-28 percent), Tata P/E Equity Fund (-12 percent) and HDFC Mid Cap Opportunities Direct Growth (-8 percent). Shall I keep them invested or should I switch to any other good performing funds? Since the amount invested is high, the valuation amount has dropped down.
A: So before we go fund specific, I would like to highlight some broader and fundamental issues in your portfolio.
1. The portfolio is significantly under diversified both in terms of asset allocation as well as at the fund level.
2. It is a pure equity portfolio with no allocation to fixed income funds to support during the stock market downturn. At least, you have not mentioned that you have fixed income allocation.
3. The portfolio is heavily concentrated towards mid and small cap stocks with no allocation to regular large-cap funds, which should ideally form the core holding in the portfolio. In a nutshell, it’s a rather aggressive high-risk high return portfolio with no buffer or cushion towards a market downturn.
Now, what you need to do is:
1. First, you have to diversify your portfolio across asset classes such as equity and fixed income. For instance, if you are a risk-taking investor, you can have 75-80 percent of the asset in equities, and 20-25 percent of assets in debt. Typically, the asset allocation is individually driven and vary from person to person. So you need to see what suits you the best.
2. In line with that, you need to do some major rework on your portfolio. Now, this doesn’t mean that you have to redeem the funds you already have. So you have to add large-cap fund to your portfolio. This you can do gradually and even by starting SIP, till the time large-cap exposure becomes around 60 percent of your entire equity allocation.
Group/InvestmentMorningstar Analyst RatingMorningstar Rating OverallReturn (in %)
1-Yr3-Yr5-Yr
India OE Large-Cap
Franklin India Bluechip GrGoldÙÙÙ-2.2112.5212.80
HDFC Top 100 GrGoldÙÙÙÙ1.0919.1614.60
Aditya BSL Frontline Equity GrSilverÙÙÙÙ-2.5614.3514.35
ICICI Pru Bluechip GrSilverÙÙÙÙÙ-0.6316.8714.42
Reliance Large Cap GrSilverÙÙÙÙ-0.1717.8216.53
SBI Bluechip Reg GrBronzeÙÙÙÙ-4.3412.7014.88
UTI Mastershare Unit Reg GrBronzeÙÙÙ-0.0914.3113.68
Large caps tend to be more stable over the long term and show greater resilience during the market downturn, whereas mid and small-cap funds provided a much need kicker to the portfolio when the markets are on an uptrend, but tends to struggle during the down market.
3. You also have a couple of value funds which also help provide good portfolio diversification over a market cycle.
Now coming to the performance of the funds, you need to understand that equity markets have been going through a rough patch since last year, so the fund’s not doing well is understandable. And during this period, mid and small cap funds have been worst affected. But, you are looking at the fund’s performance in isolation. You should look at the performance in peer relative sense. After doing that, you will get a better sense of the performance of the fund that you have invested.
Group/InvestmentEquity Style Box (Long)Morningstar Analyst RatingFrom Jan 1, 2018 - Feb 28, 2019
Annualised Return% of Peer Group BeatenDisplay Group quartile
India OE Mid-Cap
HDFC Mid-Cap Opportunities GrÌGold(13.38)652
Benchmark: IISL NIFTY Midcap 100 TR   (17.51)  
Peer Group Average  (13.80)  
India OE Small-Cap
L&T Emerging Businesses Reg GrÌ(16.65)791
Reliance Small Cap GrÌ(19.55)502
Benchmark: S&P BSE Smallcap TR  (24.81)  
Peer Group Average  (19.59)  
India OE Value
Tata Equity P/E Reg GrÉ(8.90)642
Aditya BSL Pure Value GrÌ(26.15)04
Benchmark: S&P BSE 100 India TR   1.02   
Peer Group Average  (11.26)  
Except for Aditya BSL Pure Value, most of the other funds you have invested have performed well in peer relative sense. The reason why Aditya BSL Pure Value has not done well is that the fund has a higher allocation to mid and small cap stocks given the correction in the segment and hence it has struggled. Within the small-cap space, Reliance Small Cap has witnessed a change in manager in September 2017.
So, the fund doesn’t have a long-term track record under the current manager. While there is no need to redeem your investment, you can consider a few other small-cap funds with a strong track record under the current manager in case you have to add exposure.
Group/InvestmentMorningstar Analyst RatingMorningstar Rating OverallReturn (in %)
1-Yr3-Yr5-Yr
India OE Small-Cap
DSP Small Cap Reg GrSilverÙÙÙÙ-23.8512.0321.97
Franklin India Smaller Companies GrSilverÙÙÙÙ-17.8113.1920.64
HDFC Small Cap GrBronzeÙÙÙÙ-10.9322.2019.36
On the fixed income side, you can consider investing in some high-quality funds from ultrashort, low duration and short term categories.
Group/InvestmentMorningstar Analyst RatingMorningstar Rating OverallReturn (in %)
1-Yr3-Yr5-Yr
India OE Ultra Short Duration
Franklin India US/T Bd Retl GrGoldÙÙÙÙÙ8.718.438.72
Kotak Savings Fund Reg GrBronzeÙÙÙÙ7.797.518.05
India OE Low Duration
Franklin India Low Duration GrSilverÙÙÙÙÙ8.939.089.27
ICICI Pru Savings GrSilverÙÙÙÙÙ7.567.858.31
Reliance Low Duration GrBronzeÙÙÙÙÙ7.807.608.00
Reliance Low Duration Retl GrBronzeÙÙÙÙ7.297.127.57
India OE Short Duration
Franklin India S/T Income GrSilverÙÙÙÙÙ8.879.289.22
ICICI Pru Short Term GrBronzeÙÙÙÙÙ6.457.768.49
Kotak Bond S/T Reg GrBronzeÙÙÙÙ7.047.277.95
Reliance Short Term GrBronzeÙÙÙÙ6.257.068.04
Equity is a long-term investment avenue so you should not judge the fund based on short term underperformance.
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