It is not convenient for the lay investor to keep switching between funds as interest rates change and the fund manager is in a better position to handle this. Are there funds which diversify between debt instruments, according to the interest rate outlook?
- Amit Kher
Yes, there are debt funds that can diversify among debt instruments of various maturities. These are generally called flexi or dynamic debt funds. These funds have leeway to invest fully either into long-term or short-term securities, depending on the interest rate scenarios. A few good flexi debt funds are Birla Dynamic Bond Fund, Fortis Flexi Debt Funds and Kotak Flexi Debt Fund.
I want to invest in gold funds. How do DSPBR World Gold Fund & AIG World Gold Fund differ from the gold ETFs available?. Kindly explain the correlation between gold prices and the NAVs of these two funds, too. Is this a good time to invest in these?
- Bharat Khurana
There are two kinds of gold funds available in India. First, the Gold Exchange Traded Fund (ETF), that tracks the value of gold by investing in physical gold. Second, there are funds that invest in companies in gold mining and related businesses through other overseas funds. DSPBR World Gold Fund and AIG World Gold Fund are of the second type.
On your second query, there is no direct correlation between gold prices and the NAVs of DSPBR World Gold Fund and AIG World Gold Fund. But, generally the share prices of these companies tend to benefit from a rise in gold prices. Always remember that both these are thematic funds, and as they invest in equities, their fall or rise could be much steeper than those of gold prices. This is clear from the fact that in 2008, when Gold ETFs that track gold prices delivered a return of 25 per cent, DSPBR was down by around 19 per cent. Also, thematic funds are only meant for diversification. One could have a small allocation to these funds but it should never be the core holding of any portfolio.
I have invested in Reliance Diversified Power Sector Retail Fund–Growth option via SIP mode. The SIPs were from March 2008 to March 2009, which have helped me average the sudden fall in NAV during the market slump in October-November 2008. Should I continue to invest for six more months to further average my investments in this fund? I am looking at investment in this fund for about five years. Being a sector-specific fund, could I expect returns of 15 per cent over a five-year period?
- Nitin Wali
Reliance Diversified Power Sector Retail Fund is a thematic fund that invests in companies of power and related sectors. The fund has put up an impressive show. Riding on its theme, it has delivered huge returns during the rising market and has also been able to contain its losses to an average level. It has delivered an annualised return of 43.29 per cent over the past five years ending May 26, the best performing open-end equity fund over this period.
However, being a sector-specific fund, its future performance will depend on performance of the power sector. Also, your further investment in the fund will depend on the latter’s weightage in your current portfolio. If this is the only fund in your portfolio, then you should opt for a normal equity diversified fund, as one could have a small exposure to theme-based funds but they should never be the core holding of one’s portfolio.
Value Research
