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Are these funds good investments?

Value Research | November 30, 2005

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ImageI would like to invest in a few mutual funds via a Systematic Investment Plan.

I plan to invest in any of the four mentioned below.

What do you suggest?

1. Franklin Templeton Bluechip
2. Franklin India Prima Fund
3. Reliance Growth Fund
4. HDFC Equity Fund
5. HDFC Top 200
6. HDFC Growth Fund
7. Fidelity Growth Fund
8. SBI Magnum Contra

Also, if a fund says that its return is 20%, does it mean Rs 20 on every Rs 100 we invest?

- Narender Nannayyagari

You have chosen some very good diversified equity funds. Apart from Fidelity Equity, which happens to be a very young fund, others have an impressive long-term performance record.

But making your final selection, keep a few things in mind.

Two of the funds - Franklin India Prima and Reliance Growth - are mid-cap funds. These funds would be investing primarily in mid-cap stocks.

In contrast, a fund like Franklin India Bluechip and HDFC Top 200 are large-cap oriented.

Others are largely blended funds, which means that they are not mandated to invest in stocks of a particular capitalisation. Based upon this, decide how much you want to allocate to funds focussed on different market capitalisations.

You can create your portfolio at Value Research and see how the complexion of your portfolio changes by changing the proportion of various funds in your portfolio. 

As mentioned above, most of these funds have good long-term performance records and are suitable for all equity portfolios.

While picking the funds, it would be preferable if you diversify across fund houses as well rather than investing a large chunk in the funds of a single fund house. 

Regarding your query on the return. It is right that if a fund's return is 20%, it means Rs 20 on every Rs 100 we invest. But to correctly analyse, see the time frame of the returns.

Returns for a period less than one year are generally absolute. However, for a time period of more than one year, usually annualised returns are given. For example, if a fund has annualised returns of 20% for the last five years, this means that on an average, the fund has given 20% returns compounded annually in each of the last five years. 

A few months ago, I invested in the following seven funds.

- Standard Chartered Classic Equity Fund
- Fidelity Equity Fund
- Sundaram SMILE
- Sundaram CAPEX
- Franklin Flexicap Fund
- Magnum Multicap
- Birla Too 100

I put in all my money at one go. Once I had done so, the Net Asset Value dipped. Though it fluctuates, I am contemplating on dropping one fund and replacing it with a leadership fund.

What do you suggest?

- Senthel Kumar

All your investments are in new funds, which is not a very wise thing to do.

Therefore, our first advice to you would be to choose funds with a long-term performance record for your future investments.

Secondly, equity investments are meant for the long-term. They are bound to be volatile in the short term, moving with the ups and downs of the stock market.

Therefore, any equity funds would be risky if you invest for short tenures, and churning the portfolio (constantly buying or selling) will not help.

It would be too early to comment upon your present funds.

Right now, keep a track on their performance but aim for the long-run.

In the future, invest in well-established funds, which have proven their worth over bullish as well as bearish phases of the market, rather than investing in new funds.

Got a question for Value Research? Please write to us!

Value Research


Note: Questions may be edited for brevity. Due to the tremendous response, all queries will not be answered.

Disclaimer: While efforts have been made to ensure the accuracy of the information provided in the content, or the author shall not be held responsible for any loss caused to any person whatsoever who accesses or uses or is supplied with the content (consisting of articles and information).

Illustration: Dominic Xavier

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