Making profits from your MF investments
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Mutual Fund Query -
Six months ago, I switched to DSIJ from another magazine. I feel that this is a worthwhile call that I have taken. In these turbulent times, your viewpoint/articles are impressive. Your analysis on Mutual Funds in a recent issue (7 Best MF Schemes, DSIJ Issue dated Nov 7-20, 2011) is very impressive, and that has inspired me to write you.
Mentioned below are some of my loss-making MF investments. Please advise whether I should continue with these, or switch to any others.
1. Tata Infrastructure Fund – Dividend Yield
2. Reliance Vision Fund - Retail Plan - Dividend Plan
3. Birla Sun Life Dividend Yield Plus - Dividend Plan
All of these investments were started in September 2009, with Rs 2000 per month, and they are all Dividend Yield-based funds. Shall I go for Growth schemes with the same funds, or should I sell them off and book losses?
- KSB
Answer - Mentioned in the table below are your currently invested funds:
| Fund Name | Type |
| Tata Infrastructure Fund | Sector |
| Reliance Vision Fund | Large-Cap |
| Birla Sun Life Dividend Yield Plus | Small & Mid-Cap |
We recommend exiting Tata Infrastructure Fund and Reliance Vision Fund, as these have delivered relatively lower returns (than their respective peer groups) of 15.3% p.a. and 20.6% p.a. in 3 years, with higher volatility. The funds’ one-year performance has also been below par at 27.5% and 20.9% respectively.
Infrastructure, as a sector, has not been performing well due to government inaction on releasing orders, no improvement in the order books of infra companies and the rising interest cost scenario for this highly leveraged sector. An exposure of over 10% of the total portfolio to sector funds is generally not advisable, unless one is able to time the entry and exit very well.
On the other hand, we recommend holding on to Birla Sun Life Dividend Yield Plus, as it is a top quartile performer on a risk-adjusted returns basis. As the name suggests, it holds a diversified portfolio of high dividend yielding stocks. Such stocks generally have lower volatility than the rest of the market, and hence, make for a good inclusion, especially in tough times like these.
A worthy inclusion would be the ICICI Prudential Focused Bluechip Equity Fund, which has a good stock selection, and the Franklin India Bluechip Fund, a well-diversified fund, in the Large-Cap space. These are top funds, with a CAGR of 28-30% for 3 years.
| | Absolute Returns (%) | CAGR (%) |
| Scheme Name | 3 Months | 6 Months | 9 Months | 1 Year | 3 Years | 5 Years |
| Benchmark |
| BSE MIDCAP | -5.5998 | -15.3549 | -10.6117 | -25.0452 | 25.4469 | 0.1612 |
| BSE Sensex | 2.0084 | -11.4911 | -9.2927 | -15.4396 | 21.1471 | 3.5138 |
| Diversified |
| Franklin India Bluechip(D) | 2.5943 | -7.1316 | -3.648 | -9.5812 | 27.5116 | 8.8848 |
| ICICI Pru Focused Bluechip Equity-Ret(D) | 4.055 | -6.4453 | -2.3777 | -7.5583 | 30.3793 | |
| Mid-Cap, Value |
| Birla SL Dividend Yield Plus(D) | -1.6207 | -6.2355 | -0.4303 | -11.3761 | 31.5265 | 13.2029 |
As to whether you should be in Growth or Dividend, considering the present tax laws, there is no difference for long-term investments.
One should never be averse to booking losses. After all, why are we booking losses? Simply to get rid of bad investments. The simple law to follow is to sell away bad ones, and keep accumulating the good ones. Happy investing!