MUMBAI Arvind Bansal, as a fund manager at ING Mutual Fund, does not research stocks unlike his colleagues. He studies various schemes of mutual funds to choose from. After 14 years at managing a fund of funds, he advises investors to keep away from sectoral funds that are hawked by fund houses as high return, but not told that it is a high-risk game too. "Investors should not take a sectoral call while investing in equity funds as concentrated risk is much higher in sectoral funds. And you can never say which companies will perform in a sector at what time. It's quite risky to have single-sector exposure," Bansal said.
In a bull market, any equity investment may provide a return, but when the tide turns, as it is now, it is safer to invest in a fund focused on a fund that invests in large-cap companies such as Bharti Airtel, Infosys and Larsen & Toubro, as they could weather the storm. On a three-year basis, the diversified funds category averaged 16% return compared with 13% for the S&P CNX Nifty, data from ICICI Direct shows. The benchmark Sensex has gained 2% this year against BSE's Midcap/Smallcap indices' (-7%) and (-11%) returns during the same period.
"It's always better to take a capitalisation call," said Bansal, who manages portfolio worth Rs 400 crore that are invested mostly in diversified funds such as DSP Blackrock Equity, Birla Frontline, HDFCEquity and ICICI Focus funds." While funds that invest in consumer goods and drug makers have outperformed this year, sectoral funds such as Reliance Infrastructure, SBI Infrastructure and L&T Infrastructure have grossly underperformed. Consumer goods have returned 11% this year and pharma funds 4%, reflecting investor choice for safety than high risk.
Infrastructure and banking funds have lost 3-5% over the past three months. "I am quite bearish on infrastructure and real estate," said Bansal. "The BSE Capital Goods index, which includes several engineering companies, is down 11% this year while the real estate benchmark has fallen more than 39% over the past one year," he added. Bansal has invested 70% of his equity portfolio in large-cap/diversified equity funds and 20-25% in midcap funds. He has also allocated about 15% to Nifty ETFs as he expects (diversified equity) fund managers to underperform the index in the short-term.
"Investors should look at shortterm funds," said Bansal. With upward bias on rates still on, the risk of going wrong in a gilt or income funds is very high. Risk-reward trade off is skewed towards shortterm funds," Bansal said. The value and price of bonds fall when interest rate rises.
According to Bansal, fixed maturity plans (FMPs) provide good opportunities for investors, but being accrual product will not be 'in-the-money' when rates fall. "If you're at the end of a rate cycle, it is better for investors to stay out of FMPs," he said.
In a bull market, any equity investment may provide a return, but when the tide turns, as it is now, it is safer to invest in a fund focused on a fund that invests in large-cap companies such as Bharti Airtel, Infosys and Larsen & Toubro, as they could weather the storm. On a three-year basis, the diversified funds category averaged 16% return compared with 13% for the S&P CNX Nifty, data from ICICI Direct shows. The benchmark Sensex has gained 2% this year against BSE's Midcap/Smallcap indices' (-7%) and (-11%) returns during the same period.
Infrastructure and banking funds have lost 3-5% over the past three months. "I am quite bearish on infrastructure and real estate," said Bansal. "The BSE Capital Goods index, which includes several engineering companies, is down 11% this year while the real estate benchmark has fallen more than 39% over the past one year," he added. Bansal has invested 70% of his equity portfolio in large-cap/diversified equity funds and 20-25% in midcap funds. He has also allocated about 15% to Nifty ETFs as he expects (diversified equity) fund managers to underperform the index in the short-term.
"Investors should look at shortterm funds," said Bansal. With upward bias on rates still on, the risk of going wrong in a gilt or income funds is very high. Risk-reward trade off is skewed towards shortterm funds," Bansal said. The value and price of bonds fall when interest rate rises.
According to Bansal, fixed maturity plans (FMPs) provide good opportunities for investors, but being accrual product will not be 'in-the-money' when rates fall. "If you're at the end of a rate cycle, it is better for investors to stay out of FMPs," he said.
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