Deciding whether to exit a fund

By Morningstar |  03-08-18 | 
 

I have been investing Rs 5,000 per month in Reliance Tax Saver (ELSS)-Direct Plan- Growth Option since January 2015. For the past one year there is a lot of under-performance seen in the fund as compared to its peers in the ELSS category.

Is it time now to stop future SIP's in this fund and look out for any other fund in the ELSS category?

- Archit

Fund manager Ashwini Kumar runs the Reliance Tax Saver with a concentrated portfolio strategy. Around 3 to 4 sectors form the core part of the portfolio and Ashwini is quite flexible with his market cap allocations.

He plies a Growth at Reasonable Price Strategy (GARP), which basically means while he is looking for high growth stocks, he is conscious of valuations and will not get into overvalued stocks. Over the last few years the portfolio has gravitated towards large-cap stocks and is currently largely allocated to Basic Materials, Industrials, Financials and Consumer Discretionary stocks.

Over the last one year, the fund’s performance has largely suffered due to its exposure to public sector bank stocks and Industrials stocks.

The fund does tend to have a high beta due to its concentrated sector approach and this is reflected in its movement across various market scenarios. The fund tends to appreciate greater than the index in bull markets but at the same time falls more than the market in bear markets. (As is demonstrated by its high Up Capture Ratio and Down Capture Ratios). This results into a more volatile strategy.

We do believe the fund should do well over a market cycle. It has an experienced manager at the helm. It’s excellent numbers in 2012 and 2014 shows what it is capable of accomplishing.

You can get more detailed information here:

If you are uncomfortable and do not like the volatility, you can reallocate your investments into other strategies which would be more conservative.

You can find a list of rated ELSS funds here.

I have an SIP in L&T Business Cycle fund. Should I continue?

- Devraj

I invested in Sundaram Infrastructure Fund growth 12 months ago. Should I exit?

- C S Prasad

Each of you have mentioned just one fund.

If all/majority of your investments are into this fund, we would ask you to reconsider reallocating some of this money into more diversified equity funds and fixed income funds. A large-cap fund should form the core part of your portfolio. Depending on your risk profile, you can consider mid/small/multi-cap funds.

Thematic and sector funds should typically not constitute more than 10-15% of your equity portfolio. We suggest you read this post to gain a sharpened perspective: How to invest in sector funds.

Devraj, if you already have an additional portfolio of diversified equity and fixed income funds and L&T Business Cycle fund is only an addition, then by all means stay invested.

Regarding the infrastructure fund, these funds invest into a mix of sectors that are related to infrastructure activities. By their very construct, they tend to higher beta portfolios i.e. witness sharper movements as compared to the index on either side. Sundaram Infrastructure managed by Krishnakumar, has been an average performer and has typically fallen in the 3rd quartile in the peer group over different time periods. We would recommend exiting your position in the fund and invest into a well-managed diversified equity fund.

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