Investing in thematic or sector funds

By Morningstar |  21-08-18 | 
 

How is Reliance Junior Nifty Bees to invest at current levels compared to a mid/small cap fund? Also, is it good time to invest in Motilal Oswal Nasdaq N-100 to invest at current level instead of Indian IT stocks?

- Nellore

We believe that from an Indian context, especially on the small/mid-cap space, actively managed funds are still the way to go. We have witnessed significant alpha being generated by actively managed funds in the past, a trend we expect to continue for a reasonable foreseeable future.

We don’t recommend taking a sector specific approach to investing. However, we suggest you read this post to gain a sharpened perspective: How to invest in sector funds.

That said, global funds are a great way to add diversification to your portfolio. We would definitely look at adding global diversified equity funds to your portfolio. Global funds help reduce the overall portfolio volatility.

You could look at investing in a diversified U.S. fund from the likes of Franklin India US Opportunities, DSP BlackRock Flexible US Equity, Edelweiss US Value Equity Fund, ICICI Prudential US Bluechip Equity Fund and Reliance US Equity Opportunities Fund.

I'm looking to invest in one of the following funds through an SIP of Rs 5,000 - Mirae Asset Great Consumer Fund or Tata India Consumer Fund. Are these good funds to hold for 10 years to create a good wealth surplus?

I already have a diversified portfolio of large-, mid- and small-cap funds.

I am also invested in an infrastructure fund.

My investments are across fund houses (SBI, L&T, HDFC, ICICI Prudential, Tata, Motilal Oswal) and have held onto them for a decade now.

 - Gowthaman

Kudos on being a patient investor, you would have witnessed the true benefits of being invested in equities over the long term.

We typically aren’t big advocates of sector/thematic funds. We believe a portfolio of good diversified funds does a pretty good job of creating wealth. Managers will anyways take their active calls on sectors/themes which they believe will be the growth drivers going forward.

That said, consumption is one theme that many fund managers are betting on over the last few years and continue to do so, given the increasing disposable income, burgeoning middle class and rural consumption also seeing a good uptick. Given this backdrop you could potentially consider allocating 5-10% of your overall portfolio towards this theme. Both the funds you have mentioned comprise of good quality consumer centric stocks.

The Tata India Consumer Fund is relatively newer in terms of its history, while the Mirae Asset Great Consumer Fund has a good long term track record and is being managed by the analyst who tracks the consumer-centric stocks at Mirae Asset.

Do read How to invest in sector funds for a better perspective.

I am 28 years old. My current SIPs:

  • DSP Small Cap - Rs 1,000 from December 2016
  • ABSL Equity - Rs 1,000, 18 months ago
  • SBI Bluechip - Rs 1,000 from March 2017
  • HDFC Hybrid Equity - Rs 1,000 from May 2018
  • ABSL equity was started before one & half year,

Your views?

Nirav

The funds where you are currently investing into are all well managed funds and we have a fair amount of conviction on their prospects.

The funds are from different categories, with each having their own risk return and investment time objectives: DSP Cap (small-cap fund), ABSL Equity (multi-cap fund), SBI Bluechip (large-cap fund), HDFC Hybrid Equity (aggressive allocation, with equity allocation between 65-80% at all times).

We hope your investment horizon is large. Small- and mid-cap funds should be invested in with at least a 7-10 year investment horizon, while large- and multi-cap funds should have at least a 5-7 year investment horizon.

Consider your own risk return objectives and ideal investment horizon to see which funds are the most suitable for your portfolio.

We would also urge to you to look at stepping up your SIP amounts as time goes along.

Read our analyst views here:

I am a 50-year old NRI with investments in bank fixed deposits and real estate.

I started investing in mutual funds over the last 3 months through monthly SIP's of Rs 25,000 in each of the following 5 funds with an investment horizon of 10 years.

  • HDFC Hybrid Equity
  • ICICI Prudential Equity & Debt fund
  • Kotak Standard Multicap
  • ABSL Equity
  • Mirae Asset Emerging Bluechip

- Shakeel Malik

It’s a good idea to be invested into funds that have a large-cap bias and some mid- and small-cap allocation.

The funds you are invested in are a good mix of aggressive hybrid (balanced), dynamic allocation, and multi, large and mid-cap funds. We think the funds in your portfolio are fairly well managed and their risk profile also ties in with your investment time horizon. You can continue to stay invested in these.

You can read our analyst views here:

Post your query by accessing the Ask Morningstar tab. Our team will endeavor to answer queries ONLY related to mutual funds and portfolio planning from our registered readers.
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Suresh Gyanchandani
Aug 28 2018 03:00 PM
I have started investing in mutual funds from around last few years.
Last year, my adviser invested more than 15 to 20% of my funds in infra funds, a large chunk of which was in SBI Infra and L & T infra. A small part of it was also invested in DSP TIGER. The whole lot proved very costly as I invested when the market when it was very high. Although I wanted to invest in SIP mode, but he advised me to go for lump sum. Being not much aware at that time, I did what he advised.
Now after approx one year, the total return of these funds is negative up to 10%.
I then went through various websites and material and came to know that sectoral funds should mostly be avoided. But now the arrow was shot.

So, I need a suggestion, Should I switch over from these funds or at least SBI Infra. (I will have to book losses to around 10%) and switch to better funds, or should I continue with the same funds for at least 5 years, keeping long term view. I am very confused on this matter.

I am also invested in small cap (HDFC, SBI), mid cap (HDFC, L & T) and large cap (SBI, ICICI, Mirae) , pharma (SBI), FMCG (SBI).

Thank you
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