Timing of Redeeming a non peforming fund

[life2007]

Hello Experts!

I am often confused with the idea of redeeming a fund which has begun under performing and transfer that amount to a new fund which is among the top of the table.

Funds status and returns keep on changing continously, I do understand, one is supposed to keep only an eye in the beginning but if it continues its down slide, it should be redeemed and put into a new fund.

For example, I had stayed invested in DSP Tiger and now find that the fund is on its way down. Now If I want money, definitely I should not add into this fund. However, if I select a new fund, then the portfolio size increases. Currently, I stopped investing in DSP Tiger, Magnum Contra, Tax Gain and now DSP Equity is on focus.

I selected fresh funds as replacement to the above HDFC Top 200, Reliance Regular Savings.

My query what is the logic? Should I outrightly sell investments in the non-performing funds and get those amounts back in the above new funds or there is a special rule to this to minimize loss..

Thanks

jeet

 

[nikrod]

Hello Experts!

I am often confused with the idea of redeeming a fund which has begun under performing and transfer that amount to a new fund which is among the top of the table.

Funds status and returns keep on changing continously, I do understand, one is supposed to keep only an eye in the beginning but if it continues its down slide, it should be redeemed and put into a new fund.

For example, I had stayed invested in DSP Tiger and now find that the fund is on its way down. Now If I want money, definitely I should not add into this fund. However, if I select a new fund, then the portfolio size increases. Currently, I stopped investing in DSP Tiger, Magnum Contra, Tax Gain and now DSP Equity is on focus.

I selected fresh funds as replacement to the above HDFC Top 200, Reliance Regular Savings.

My query what is the logic? Should I outrightly sell investments in the non-performing funds and get those amounts back in the above new funds or there is a special rule to this to minimize loss..

Thanks

jeet

You can sell your non performing funds if your investments have completed 1 year. This way, your gains will be tax free.

Now about re-investing the money from sale. I am not too sure about the portfolio implications but I think it would be OK if you invest money in lump sum in this case. Since you are effectively moving money from one equity fund to another, Lump sum investment is justified. Still if you feel that market has got too hot at time of your redemption, you can start SIP with money from sale of old funds.

Note - Your new fund choices are good. They both have consistently performed.

 

[drsambu123]

Hi
Do not switch for short term underperformance. because every fund will experience the same. the funds u have selected at the beginning are also good. U always compare with the catecory average and keep a close watch. u can read the fund analysis in valueresearch online website. they regularl comment the funds.. They down grade or upgrade the funds regularly .. Avoid lumsum investment in any fund Go via SIP or STP( systematic transfer plan)....

 

[yodlee99]

Hi,
I am running into similar issues with few of my funds consistently under-performance. To say the truth, I put in money at the peaks of Dec 2007 and have waited quite a while. In view of the opportunity cost, I want to redeem or switch out of these funds. What would you suggest - redeem at once or switch within the same AMC? The 2 dividend funds (below) gave dividends but still shows losses.
1) SUNDARAM BNP PARIBAS CAPEX OPPORTUNITIES FUND - GROWTH 10,000Rs became 9000Rs;
2) SUNDARAM BNP PARIBAS SELECT FOCUS - DIVIDEND 20,000Rs. became 9900Rs;
3) SUNDARAM BNP PARIBAS SELECT THEMATIC FUNDS ENERGY OPPORTUNITIES FUND - DIVIDEND 10,000Rs. became 8200Rs;
4) ICICI PRUDENTIAL INFRASTRUCTURE FUND - GROWTH 10000Rs. became 8800Rs and
5) RELIANCE NATURAL RESOURCES FUND - GROWTH 10000Rs. became 9000Rs.

These funds have gone down in the last 2-3 yrs. What would you propose that I do - hold or redeem or switch. If switching within the same AMC, what would be some good alternate funds? Currently I dont have any other funds of Sundaram, but have Reliance banking fund which is doing fine and also have some ICICI discovery fund.

Thanks !

 

[sln1941]

Friends,

Avoid lumsum investment in any fund Go via SIP or STP( systematic transfer plan)....

It is true that lumpsum investment involves risk but it may have exception in cases of switching investments from one fund to another. If one partly cashes the non performing fund and invest in good fund he is allowing the money to continue to non perform to the extent of money not cashed. If one cashes the entire investment in non performing fund and invest only in parts he is allowing money to idle. Under the circumstances it is better to cash all the money in non performing Funds and invest in lumpsum in select performing Funds. It is said that the timing of market is not as important as time in the market.

S.Lakshminarayanan

 

[nikrod]

Friends,



It is true that lumpsum investment involves risk but it may have exception in cases of switching investments from one fund to another. If one partly cashes the non performing fund and invest in good fund he is allowing the money to continue to non perform to the extent of money not cashed. If one cashes the entire investment in non performing fund and invest only in parts he is allowing money to idle. Under the circumstances it is better to cash all the money in non performing Funds and invest in lumpsum in select performing Funds. It is said that the timing of market is not as important as time in the market.

S.Lakshminarayanan

Yes I agrre with the fact that only right to invest in lumpsum in equity funds is when you sell a poor fund & switch the money to better one. From portfolio prospective, your equity allocation will not change and that's what justifies the lumpsum investments in such time.

Still if individual feels that market is overheated when she is switching funds, she can still do a SIP.

 

[nikrod]

Hi,
I am running into similar issues with few of my funds consistently under-performance. To say the truth, I put in money at the peaks of Dec 2007 and have waited quite a while. In view of the opportunity cost, I want to redeem or switch out of these funds. What would you suggest - redeem at once or switch within the same AMC? The 2 dividend funds (below) gave dividends but still shows losses.
1) SUNDARAM BNP PARIBAS CAPEX OPPORTUNITIES FUND - GROWTH 10,000Rs became 9000Rs;
2) SUNDARAM BNP PARIBAS SELECT FOCUS - DIVIDEND 20,000Rs. became 9900Rs;
3) SUNDARAM BNP PARIBAS SELECT THEMATIC FUNDS ENERGY OPPORTUNITIES FUND - DIVIDEND 10,000Rs. became 8200Rs;
4) ICICI PRUDENTIAL INFRASTRUCTURE FUND - GROWTH 10000Rs. became 8800Rs and
5) RELIANCE NATURAL RESOURCES FUND - GROWTH 10000Rs. became 9000Rs.

These funds have gone down in the last 2-3 yrs. What would you propose that I do - hold or redeem or switch. If switching within the same AMC, what would be some good alternate funds? Currently I dont have any other funds of Sundaram, but have Reliance banking fund which is doing fine and also have some ICICI discovery fund.

Thanks !

The problem with yuor investments was lump sum investment. Also 2 of your funds are opportunity funds and remaining 3 thematic. This phenomenon largely affected performance of your funds. Consider investing in good diversified equity funds if you withdraw from any of the above funds.

One more point to note is investor sentiment or emotion does not allow him to sell an investment when it is still in loss. You will be compelled to wait till your original capital is recovered in above funds. My advice would be to avoid this mistake and sell poor & non performing funds immediately for better funds.

 

[sln1941]

The problem with yuor investments was lump sum investment. Also 2 of your funds are opportunity funds and remaining 3 thematic. This phenomenon largely affected performance of your funds. Consider investing in good diversified equity funds if you withdraw from any of the above funds.

One more point to note is investor sentiment or emotion does not allow him to sell an investment when it is still in loss. You will be compelled to wait till your original capital is recovered in above funds. My advice would be to avoid this mistake and sell poor & non performing funds immediately for better funds.

Can't agree more with you Mr nikrod. One generally is reluctant to sell a loss making fund and waits for it to recover because he selected the fund after due care at the time of investment.

I fell now is the time to sell the poor performing funds and switch over to other good fund as the Nifty/market seems to be at its high and does not seem to be in a hurry to run away to a new High. What is the opinion of the senior members ?

S.Lakshminarayanan

 

[sln1941]

I have 25 or so Funds in my portfolio and I am afraid that I may not even know all my funds. I therefore would like to sell all of them and put them in 5 or 6 good Mutual Funds. Can the seniors suggest Select Funds for the purpose. Also I would like to get them in Demat form to avoid loss in future . Are all the depository participants obliged to get physical Funds dematerialised ? I hold DP account with HDFC Bank.

Shall be thankful for the guidance.

S.Lakshminarayanan

 

[nikrod]

I have 25 or so Funds in my portfolio and I am afraid that I may not even know all my funds. I therefore would like to sell all of them and put them in 5 or 6 good Mutual Funds. Can the seniors suggest Select Funds for the purpose. Also I would like to get them in Demat form to avoid loss in future . Are all the depository participants obliged to get physical Funds dematerialised ? I hold DP account with HDFC Bank.

Shall be thankful for the guidance.

S.Lakshminarayanan

I have given some fund choices below. I am assuming that you already have some debt exposure in form of FD's & NSC / Bonds. Therefore I am only memtioning equity funds.

Choose any 2 Large Cap Funds as Core Holdings
HDFC Top 200
DSPBR Top 100
Birla Sun Life Frontline Equity
Franklin India Bluechip Fund

Add one Aggressive Fund
Reliance Regular Savings Equity
UTI Opportunities

Add one Large-Mid cap Fund
Reliance Growth
DSPBR Equity – Do not choose this if you select DSPBR Top 100

Add one Mid cap Fund
IDFC Premier Equity
Sundaram BNP Select Midcap
Birla sun Life Mid Cap Plan A
Sundaram SMILE

Add one Sector Fund
Reliance Diversified Power Sector - Do not select if portfolio has 2 other Reliance funds
Reliance Pharma - Do not select if portfolio has 2 other Reliance funds
ICICI Prudential Infrastructure