Should I exit my Templeton fund?

By Morningstar |  18-11-19 | 
 

We suggest you avail the services of a financial adviser. You can read our latest analyst views on various funds here. Below are some guidelines on specific funds.

I invest in SBI Magnum Global Fund for the past 5 years. Should I continue? The fund is not performing well 

- Ashok

Until mid-2018, SBI Magnum Global Fund had a mandate to invest in high quality stocks that have the capability of generating long term returns.  Post SEBI recategorization, the mandate is to invest at least 80% of the portfolio into MNC stocks.

Besides the change in mandate, there is a fund manager change.

The fund is an absolute return strategy that does not aim to beat the benchmark or its peers, rather the aim is to generate a consistent stream of positive returns over the long term.

The fund’s returns have remained positive over the past 5 and 10 years. Having said that, an investor’s individual experience may vary depending on the time period when the investment was made. You will need to think about the fund from the context of an overall portfolio and assess if it indeed fits the bill in terms of the mandate.

I invested in DSP Small Cap. Please help in understanding if I should continue with it or move to another small-cap fund and if yes then which one? I have already stopped my SIP since Jan 2019 whereas I started in 2014 with Rs 3,000 per month. 

Sandip  

DSP Small Cap Fund offers a slightly differentiated investment proposition than other funds from the small cap category. This fund is a pure play small cap strategy and is largely run with a valuation conscious investment approach. Therefore, it does not invest in large cap stocks and doesn’t take cash calls either. The last two years i.e. 2018 and 2019 have been a tough one especially for mid & small-cap segments and valuation conscious approach. Hence, it’s for these reasons that this fund has not been able to perform well in these two years. As a result, its long-term performance has been hit, which is not entirely unexpected.

This is the nature of small cap funds and it requires investor to have a relatively higher risk appetite to invest in them. Also, the investment horizon must be longer i.e. not less than seven years to make the most from their investments.

Also, you have stopped the SIP at a wrong time as you lost out on a chance of rupee cost averaging, which is the essence of SIP investing, as the markets continued to be volatile in 2019. I would recommend you access your risk appetite before investing in small cap funds. However, if you chose to invest then Franklin India Smaller Companies and HDFC Small Cap are some of the funds for you.

Having said that, we would urge you to first understand the investment proposition offered by these two funds clearly before investing in them. Also, small cap fund tends to be a very high risk-high return investment proposition and are prone to intense volatility during uncertain times or market downturn.

I have Franklin Blue Chip for a long time. I am not seeing any growth here. - Jagannathan

You rightly pointed out; the performance of Franklin India Bluechip Fund has not been in line with expectation. While nothing has changed in the fund, the strategy with which this fund is managed, and manager’s investment style has been out for favour, which has resulted in its relative underperformance.

Given your concerns, you can consider keeping your investments in Franklin India Bluechip on hold till the time there are signs of improvement. Instead you can look at other funds from the large cap category, matching your requirement and risk profile.

Would you recommend to stop ongoing SIP's in Franklin Equity Advantage (erstwhile Flexicap) because of very poor returns over the last 5 years? Can I have 2 funds from the same AMC, managed by same fund managers, but in different categories?

Kshitij   

You are right, the performance of Franklin India Equity Advantage Fund has not been in line with expectation. In fact, most of the equity funds from Franklin Templeton are going through a rough phase. That is largely because the broader investment philosophy with which Franklin Templeton equity investment team manages its funds have been out of favour for some time now; and Franklin India Equity Advantage Fund is no different. While there is nothing wrong with the fund or the strategy with which it is managed, its construct and investment proposition is not fit for all investors.

Given the concerns that you have around the fund’s performance, there is no harm in diversifying your portfolio by looking at some other strategies from the Large & Mid Cap category.

Also, it essential to understand the investment proposition offered by a fund before investing in them. In addition to that, you need to have a long-term investment horizon of not less than seven years to make the best from your equity investments.

There is no harm in having two funds from different categories from the same AMC in your portfolio - if the manager has skills to effectively run different strategies and if both funds can complement each other in your portfolio.

Any latest views and opinions on Franklin India Equity Fund (erstwhile known as Franklin India Prima Plus)?

- Mukund  

The performance of Franklin India Equity Fund has not been in line with expectations. It’s because of its underperformance in 2017 and this year so far, that its long-term performance is also looking mediocre. Interestingly, while nothing has changed in the fund, the strategy with which this fund is managed, and manager’s investment style has been out for favour, which has resulted in its relative underperformance.

We are in the process of reviewing Morningstar Analyst Ratings on equity funds from Franklin Templeton and will be soon releasing our updated view on them.

Should I stay invested in Tata Equity P/E fund Direct? 

- Prabuddh

Tata Equity P/E is a value-oriented fund and invests in companies at an attractive PE ratio. The portfolio manager – Sonam Udasi buys good stocks at cheap valuations with a key focus in spotting companies that are either attractive in comparison with historical valuation. The fund invests at least 70% of its assets in companies based on this criterion. The manager has constructed quite a diversified portfolio with high exposure to large cap stocks. With this strategy the fund’s performance has been outstanding across the time frames. We think Value strategies can play a good complimentary role in investor portfolios along with other strategies that have a growth style bias. Thus we recommend continuing to stay invested in the fund.

I have been investing in ABSL Pure Value fund since 2 years on monthly SIPs. It’s on the downtrend since I started an SIP. I am at cross roads whether to continue SIP or stop and switch to another fund MF.

- Satish

The Aditya Birla Pure fund has been underperforming since early 2018, predominantly due to its overall exposure in the small & mid cap space. This has in turn impacted the fund’s cumulative long-term performance. The fund’s performance during the period between 2013 and 2017 has remained in the top two quartiles amongst peers. It’s important to note that funds tend to face some volatility in performance over the short term, especially during market downturns where small & mid caps can fall more significantly than Large caps. However, staying invested over the long-term averages returns, thus benefiting investors. The Aditya Birla Pure Value fund is likely to generate decent returns over the long term. Having said that we have a positive rating on a couple of other funds like the ICICI Vale Discovery and the UTI Value Opportunities funds.

Should I stay invested in Aditya Birla Sunlife Small Cap after having roughly registered a loss of over 30% since the time I bought it? If I should switch, can you suggest an alternative keeping in mind I have lesser risk threshold now.

- Aditya

The Aditya Birla Small Cap fund has fared poorly since 2018. Having said that, the long-term year on year performance of the fund has remained above average. The fund’s underperformance in 2018 and year to date basis in 2019 (as of October 2019) has impacted the fund’s overall cumulative performance. It’s important to note that funds tend to face some volatility in performance over the short term. However, staying invested over the long-term averages returns, thus benefiting investors. The Aditya Birla Small Cap Fund is managed by a well experienced manager and backed by a stable term.

If you prefer to lower your risk threshold, you could look at investing in a large cap or hybrid fund as opposed to remaining invested in a small cap fund which will be impacted by the cyclicality of this segment. Some of the funds that we have a positive opinion on include HDFC Top 100, Franklin India Bluechip, ICICI Prudential Bluechip Fund and HDFC Balanced Advantage Fund.

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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Mahendra Yadav
Jan 14 2020 01:16 AM
I have been doing STP in Franklin India Equity Fund ( Prima plus) for last two years , the performance is rather dismal in comparison to its peer group and benchmark, the exposure is around 6 lacs plus , should I exit the fund and move to some other better performing multi cap fund . Please advice
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