Should I sell any of these 3 funds?

By Himanshu Srivastava |  05-05-21 | 
 
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About the Author
Himanshu Srivastava is a Research Analyst with Morningstar. He would like to hear from you, but cannot give financial advice.

Should I continue with HDFC Housing Opportunity Fund, IDFC Sterling Value, and Nippon Small Cap Fund?

I have no idea as to whether the funds mentioned are the only ones in your portfolio, or there are others. Neither do I have any idea as to how long you have been invested. I am also unaware as to whether you are still doing SIPs into these funds or it was a lumpsum investment.

Since I am clueless as to the personal context, I shall limit my views only to observations on each individual fund, and not in context to your overall portfolio.

HDFC Housing Opportunity Fund

This is a thematic fund. The prospects of such funds are linked to the underlying theme, which in this case is the growth in housing and its allied business activities. Such funds are a high risk–high return investment proposition. They may go through bouts of intense volatility and prolonged phase of underperformance when the underlying theme goes out of favour. In such a scenario, given the fund’s mandate, the manager is not able to move into other better performing sectors or themes.

Hence, such funds are for high risk-taking investors who have the stomach to withstand the risk associated with such investments. Based on this, you can evaluate if this fund is fit to be a part of your portfolio. Do read 7 questions to ask when investing in a sector fund.

IDFC Sterling Value and Nippon Small Cap Fund

One is a value fund with a significant mid-cap exposure. The other is a small-cap fund. Hence, both are relatively high on risk. You need to take a look at your asset allocation and see where you stand with respect to these funds. If it is within the prescribed limit, and in line with your investment objective, you can continue with your investments.

Whenever you consider exiting a fund, there are three dimensions from which you should tackle the issue.

Investments in equity related avenues should be made from a long-term perspective (preferably not less than 7 years). However, regular review should be conducted to weed out funds which are no more in sync with your investment profile and objective, or which have failed to add expected value to your portfolio.

Here are some guidelines.

  1. Has the positioning in your portfolio changed? Does the fund in question gravitate towards a market cap that is making your equity portfolio tilt in one direction?
  1. Has the purpose of investing in it changed? Were you comfortable with a particular fund manager and now that has undergone a change? Or, has the fund’s mandate changed? Or is the fund manager taking much more concentrated bets that you are not comfortable with?
  1. Has the fund met your expectations in terms of return? Have you reached your goal for which you invested in the first place?

These funds have performed well in the recent times. But as I mentioned, all tilt towards a higher risk. So, you should check their aptness in your portfolio before taking a decision.

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