Retail investors should avoid sector funds: Forefront Cap

Below is the edited transcript of her interview on CNBC-TV18. Also watch the accompanying video.

Q: An investor can invest Rs 5000 per month. I have equity investments but most of them are ELSS funds. I have a timeframe of 3-4 years in which I would like to achieve a goal of Rs 30-40 lakh. How should I allocate the money?

A: Firstly, the goal is very aggressive given what he wants to invest a month. He should opt the investment amount per month substantially. I would advise him two equity funds since he is pointed out he wants to be vary of a choppy market. One is DSP Equity that’s an all encompassing equity fund and he can do a SIP into it, so he will smoothen out the market volatility. The second fund if he wants to be a little more conservative is a Franklin Templeton PE Ratio Fund of Funds, it buys when the market is low broadly and sells when the market is at a high. So it’s a little bit more conservative and you will see smaller capital losses in the fund. 

Q: I can invest Rs 20000 per month. I already have mutual fund investment of around Rs 8 lakh. I have SIPs in three or four funds like Quantum Long Term Equity Fund, Birla Dividend Yield, Canara Diversified Equity, UTI Opportunity and HDFC Balanced with Rs 4000 per month. I am looking to accumulate Rs 15-20 lakh after 10-15 years. How should I allocate the money?

A: I think he is on the right track. He should add a little bit more, probably Rs 10000-15000 a month. He is invested in too many funds. This is a common problem among investors. He should consolidate those holdings into four funds, maybe 20% in a debt fund like ICICI Regular Savings and other 20% in a gold fund like in HDFC Gold Fund and the balance in two equity funds. So if he has DSP Equity, he can keep DSP Equity or HDFC Equity and one midcap fund like IDFC Premier Equity. Everything else should be consolidated into this portfolio otherwise it will become very unwieldy and very difficult to track.

Q: Do you have any advice on sector funds, some people were advising against retail investors getting into specific sector funds, would you have an advice on Reliance Pharma and Banking fund?

A: I would advise him to get out of them. In general, sector funds are not appropriate for retail investors. You already get enough exposure to pharma and banking and these are the sectors in a diversified fund. For instance, banking is 25% of a diversified fund, and with sector funds, it’s very difficult to time what is a good time for the sector given where the economy is at, tends to be much more risky. So for many reasons, sector funds don’t make sense.