Coming to terms with a sector fund

By Morningstar |  28-01-20 | 

We urge readers to consult with a financial adviser before investing. What we offer are just broad suggestions. You can read our analysts’ views on various funds here.

I plan to invest for the next 25-30 years (if possible, with 5-10% increase in SIP amount every year). My SIPs:

  • Mirae Asset Tax Saver: Rs 6,000 (ELSS)
  • Motilal Oswal Long Term: Rs 5,000 (ELSS)
  • HDFC Small Cap: Rs 5,000
  • L&T Emerging Business: Rs 4,000
  • Mirae Asset Emerging Bluechip: Rs 5,000

- Harish

Here are our observations:

  • The funds listed are fundamentally sound, with strong managers backing the fund and a well-structured process to support them. Individually, all these funds will tend to do well if you remain invested over the long term.
  • From an asset allocation perspective, the exposure towards large caps hinges mainly on the two tax saving funds in your portfolio, both of which carry a significant exposure to large-cap companies. Ideally you should look at pure large-cap funds with a varied style to diversify your portfolio.
  • There will be a significant overlap in the portfolios of Mirae Asset Tax Saver and Mirae Asset Emerging Bluechip.
  • You could look at adding a few mid-cap funds considering that you don’t hold any exposure towards this segment of the market.

You should reduce portfolio level overlaps and ensure that you are diversifying across different styles. This will give your portfolio a cushion, especially when one particular style (value for example) does not perform during a particular market cycle.

I have a 12-year time frame. What do you feel about my fund selection?

  • Mirae Asset Emerging Bluechip: Rs 5,000
  • Axis Small Cap Fund: Rs 5,000
  • Parag Parikh Long Term Equity: Rs 500
  • Axis Bluechip: Rs 5,000
  • Axis Midcap: Rs 5,000

- Nilesh

You do have a good set of funds in your portfolio. The funds you have named are fairly well managed strategies and in addition it’s a good mix of funds from different categories.

Mirae Asset Emerging Bluechip is managed by Neelesh Surana. The manager has executed the strategy well and outperformed most of its peers since inception due to its focus on quality stocks.

Parag Parikh Long Term Equity Fund is a multi cap and its distinctive feature is its exposure in international companies. This provides a good hedge against both the rupee and underperformance in the Indian economy.

Axis funds have been doing fairly well over the last few years.

But why three funds are from one single fund house? Diversify across asset classes, fund styles, market cap and fund houses.

I invested in Mirae Asset Great Consumer Fund two years ago. My investment is showing a CAGR of 11%.  Time to exit?

- Amey

When you invest in a thematic/sector fund, you must comprehend the investment proposition. Such funds typically have a narrow investment mandate. They are bound by the theme or sectors they wish to track and do not have the liberty to deviate from them even if the underlying sector or theme goes out of favour.

Being cyclical in nature, they are a typical high risk – high return investment proposition. They have the potential to deliver superior returns when the underlying theme is going through a purple patch. However, in an adverse scenario, they can witness above average volatility, and can also go through prolong phases of underperformance.

Such funds are meant for investors who have the risk appetite for such funds, and who understand the dynamics of the underlying sector so are in a position to time their entry and exit.

This fund has performed well in comparison to others with a similar investment mandate. If you have the credentials which are required to invest in such funds and if this fund continues to justify its position in your portfolio and delivers what it is meant to, then you can continue your investment in it.

If you are unsure, you can consider looking for more suitable options in the diversified equity fund space.

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