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Your MF queries answered

| 6/6/2011 7:02 PM Monday

Q. In 2007 I invested Rs 150000 in SBI Magnum Taxgain and Rs 100000 in Reliance Diversified Power Sector Fund. In my opinion the performance of both the funds is not satisfactory. Please suggest to me three or four funds wherein I should switch over the entire amount. At present my age is 29yrs.

-  Neeta Deshkar

A. Neeta, the inference on performance is quite easily made! In any case, the table below clearly shows the numbers relative to choices one could have made. I have deliberately avoided comparing the Power sector fund with any other infrastructure fund, as I believe the basic choice one makes is whether to take a sector bet or invest in a diversified fund. The power sector fund did very well in the period upto 2008, and was considered an outperformer. But that was more due to the optimism attached with the sector as a whole. After the financial crisis of 2008, the fund has not been able to make a comeback. Not just this fund, but so too with the other infrastructure funds. Partly government policy is to blame – they have been sitting tight on orders for the entire year. It was only in March that we were able to see some releases.

The power sector fund rose about 7.5% in one month as compared to 5.4% of the Sensex, showing a willingness to rise as long as the order books were showing promise. The power sector still has a lot of challenges to face, and I would say that patience is required by the investor. If one were to examine the portfolio of this fund, there would be no cause to complain on the quality of the companies held in it. But if one does not have the wherewithal to research sector trends and take compensatory action, it is definitely safer to opt for a diversified equity fund. The performance is smack in your face.

As far as the ELSS is concerned, Magnum Taxgain has not had a good run. It did have a large portion of non-large caps in its portfolio 3 years ago and has reduced the proportion of mid caps subsequently. But that could been a factor for the underperformance of the fund. HDFC Tax Saver, too had about 38% mid caps in its portfolio but managed to turn in a better performance with good stock selection and fund management. I would tend to agree with you on choosing a replacement for magnum, Taxgain in case you have completed the mandatory 3 year lock-in.

 

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