Don't make decisions on 1-year performance alone

By Morningstar |  24-09-18 | 

I am new to investing and want to invest in a short-term fund.

- Garvi

Short-term funds are for investors looking at stable returns with a low risk appetite through a portfolio comprising of debt and money market instruments. The duration of the portfolio typically ranges between 1-3 years. You can find a list of rated short-term funds here.

We recommend that you consult with an investment adviser who will help you gauge an understanding of your risk-return objectives and draw up a suitable asset allocation for your portfolio.

I would like a monthly income from HDFC Balanced Advantage. Which option is better? Dividend or SIP?

- Upendra

HDFC Balanced Advantage Fund is the erstwhile HDFC Prudence Fund. It is now a part of Balanced Advantage or Dynamic Asset Allocation category. Under this category, the funds have the liberty to move dynamically between equity and debt segments without any restrictions or limits. This fund in particularly is an equity-oriented fund, which means it will largely maintain a minimum of 65% of assets in equities. Given the nature of this fund, it is apt for long-term investment horizon from growth perspective rather than monthly income.

Do read Clearing the difference between HDFC Balanced and HDFC Balanced Advantage

If your requirement is monthly income, then you must consider investing only in debt-oriented funds that can potentially payout out dividends consistently. For this its better you opt for the dividend plan. However, you must note that the quantum of dividend may vary; also, the dividends are not guaranteed even if you are invested in a dividend plan as it depends on the scheme’s performance.

SWP on the other hand works best if you already have a corpus. You can invest this corpus in a fund (preferably debt fund) and choose to withdraw a prespecified sum of money at regular intervals. SWP is typically used in retirement.

Do read 8 things to note about SIP

Last year, my adviser invested more than 15-20% of my money in infrastructure funds - SBI Infrastructure, L&T Infrastructure, DSP T.I.G.E.R. He advised me to do a lumpsum. And I invested when the market was very high. Now, the total return of these funds is -10%.

Should I switch over from these funds even if it is at a loss? Should I continue with the same funds for at least 5 years?

- Suresh

Infrastructure funds are typically high Beta. i.e. make more dramatic movements than the market. This results in greater volatility in these funds. Unfortunately, your portfolio is overallocated towards Infrastructure Funds. Typically, we don’t recommend making more than a 5-10% allocation towards thematic funds.

Do read How to invest in sector funds

Since you are already invested in these fund and these are currently at a loss, one way of thinking is to stay put till you recover your losses. At the same time, one must think of opportunity costs, i.e. Costs of missing out on alternative investment options. We think it would be prudent to reduce your allocation towards these funds to 5% and reallocate the remaining towards diversified equity funds. You could do this by setting up a STP to diversified equity funds over the next 6 months so as to reduce the element of market timing.

These are my debt holdings:

  • Franklin Ultra Short Bond
  • Franklin Short Term Income
  • BSL Dynamic Bond
  • HDFC Medium Term Opportunities
  • BSL Corporate Bond
  • ICICI Prudential Savings Fund

These are my SIPs:

  • ICICI Prudential Value Discovery
  • ICICI Prudential Bluechip
  • HDFC Top 100
  • HDFC MidCap Opportunities
  • HDFC Equity
  • Franklin India Equity
  • Franklin India Smaller Companies Fund
  • DSP BR Small Cap (small)

Should I continue with the holdings I have? Should I discontinue any specific fund and divert to another? Should I consolidate my debt holdings?

- Sanjay

The debt funds are well managed funds and most of them are covered under our analyst rating initiative with either Silver or Gold ratings. Also, it’s a well-crafted portfolio with funds from across fund houses, categories and styles. We don’t see any need to make changes in your portfolio.

Your holdings seem quite diversified across categories, with a larger allocation towards large-cap funds. The underlying funds that you have invested in have a long track record and have positive ratings based on our analyst research. DSP Small Cap, ICICI Value Discovery, ICICI Bluechip, Franklin Smaller Companies are rated ‘Silver’ by our analysts. Franklin India Equities, HDFC Equity, HDFC Top 100 and HDFC Mid Cap Opportunities are rated ‘Gold. These are funds that we place a high level of conviction on.

You can access the analyst reports here.

From an asset allocation perspective too, your portfolio seems diversified across categories.

Should I continue to hold Aditya Birla Sun Life Pure Value Fund? It has shown no return over the past year.

- Deepak

Should I do an SIP in Aditya Birla Sun Life Pure Value Fund? 

- Nanda

The fund is managed by Mahesh Patil who is a great stock picker. Though the fund has not done well so far this year, we think that this will be a short-term blip given that the current market is in favour of growth stocks. Running a value strategy in this market and finding stocks that fit into the manager’s ‘value’ criterion could prove slightly difficult when the market is witnessing a rising Price to Earnings trend. Having said that, we have a positive view on the fund given its past track record and the manager’s capability. We would not recommend exiting a fund based on short term performance.

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.

Add a Comment
Please login or register to post a comment.
Mutual Fund Tools