Confusion on lumpsum investment of sbi contra fun direct growth and sbi PSU fun direct growth

Ans: You deserve appreciation for taking initiative to invest in equity mutual funds. It shows your awareness about long-term wealth creation. Many investors hesitate to enter equity markets due to fear of volatility. But you have taken a positive step toward growth and financial independence. That is commendable.

Your choice of investing in thematic and sector-based funds shows interest in exploring market opportunities. However, such funds need deeper understanding and careful handling. Let’s look at this from a Certified Financial Planner’s viewpoint to help you make a clear, confident decision.

» Understanding the Nature of Your Funds

You mentioned two specific funds — one is a contra fund, and the other is a PSU fund. Both belong to specialized categories in the equity segment. Though both are equity funds, they differ in their investment style and risk profile.

A contra fund invests in companies that are undervalued or ignored by the market. It follows a contrarian approach — buying when others are not interested. The idea is to benefit when those stocks recover and rise.

A PSU fund, on the other hand, focuses mainly on government-owned companies. These companies operate in sectors like banking, energy, power, and infrastructure. PSU funds depend heavily on government policies and economic decisions.

Both funds can give good returns when conditions favour their themes. But they can also underperform for long periods when market cycles shift.

» Nature of Lump Sum Investment

Lump sum investment means putting a big amount at one time. It can work well if market valuations are reasonable and your investment horizon is long. But in thematic or sector funds, timing becomes very critical.

Since these funds move sharply with market trends, entering at the wrong time can delay returns. That is why lump sum investment in such funds needs careful planning and proper guidance.

» Disadvantages of Direct Funds

You mentioned investing in direct growth plans. Many investors assume direct plans are better because of lower expense ratios. But the reality is different.

Direct funds do not give you professional guidance or review support. You are fully responsible for fund selection, timing, monitoring, and rebalancing. This can become complex when you are dealing with thematic or sectoral funds.

Direct investors often make emotional decisions during market ups and downs. They buy when markets rise and sell in fear when markets fall. This reduces long-term returns.

Even a small mistake in entry timing or exit decision can cost more than the saving from lower expenses.

» Benefits of Regular Funds through a Certified Financial Planner

When you invest through a Certified Financial Planner using regular plans, you get much more than just fund access.

You get professional help to assess your financial goals and risk level.

The CFP checks if these thematic funds actually fit your portfolio.

You receive ongoing review and rebalancing support.

You get clarity on how much exposure to such high-risk categories is safe for you.

The CFP also helps in tax-efficient withdrawal and goal alignment.

This 360-degree support ensures you earn stable, disciplined returns without unnecessary stress.

» Evaluating Contra Funds

Contra funds can perform well when market sentiment changes from negative to positive. They identify undervalued sectors or companies. But they need long patience, as the recovery may take time.

Sometimes these funds underperform during market rallies because they hold stocks ignored by the market. But over the long term, if managed well, they can deliver strong risk-adjusted returns.

To benefit from a contra fund, you must have a long-term horizon — ideally 7 years or more. Also, it should not form a large part of your portfolio. It should be a satellite holding, not the core.

» Evaluating PSU Funds

PSU funds depend on government policies, reforms, and global commodity cycles. When reforms happen in sectors like power, banking, or energy, PSU stocks rally sharply. But they can also stagnate when reforms slow down or profitability weakens.

These funds are suitable only for investors who can handle high volatility and have a long time horizon. Like contra funds, they should not form your main investment.

» Comparing Risk Levels

Both contra and PSU funds are high-risk, high-return categories. Their short-term movement can be unpredictable.

PSU funds depend on economic cycles, while contra funds depend on market sentiment cycles. If both are part of your portfolio, you might have too much exposure to cyclical and policy-sensitive areas.

This increases concentration risk and reduces stability. So, it’s important to limit exposure and maintain balance with diversified equity funds or hybrid funds.

» The Importance of Diversification

Diversification is the key to stable long-term returns. Investing only in thematic or sector funds is like betting on specific parts of the market. It can work in some years but not consistently.

A Certified Financial Planner helps design a portfolio with the right mix of diversified equity funds, hybrid funds, and debt funds. This ensures steady compounding without large swings.

Your thematic funds can then act as an additional growth booster, not the main engine.

» Timing and Market Cycles

Timing plays a big role in thematic funds. For example, PSU funds perform well during economic expansion or when government spends on infrastructure. Contra funds do well when undervalued sectors rebound.

But predicting such timing is very hard. Even experienced investors find it difficult. That’s why lump sum investing in these funds carries higher risk.

Systematic Transfer Plans (STP) through a Certified Financial Planner can reduce this timing risk. You can park your money in a liquid fund and transfer it monthly to the equity fund. This spreads your entry across months and averages out the purchase cost.

» Emotional Discipline and Expert Support

Investing directly in thematic funds needs emotional discipline. When the fund underperforms for a year or two, many investors panic and exit. But these funds often need time for their theme to play out.

Having a Certified Financial Planner ensures you stay calm and stick to your long-term strategy. You get proper explanation and confidence during volatile periods.

» Role of Fund Manager and Active Management

Both these funds are actively managed. This is a positive aspect. In India, actively managed funds have a better chance to beat the market because our markets are still developing and not fully efficient.

Fund managers can identify opportunities early and avoid weak companies. That’s why actively managed thematic funds can do better than passive or index-based options.

» Why Not Index Funds or ETFs in This Case

Index funds simply copy an index. They don’t use research or judgement. They buy all companies in the index, including poor-performing ones.

For example, if PSU or contrarian sectors are not part of the index, index funds cannot capture their potential. Also, during market corrections, they fall as much as the index because there’s no active risk control.

That’s why actively managed funds like yours offer better long-term scope if managed wisely under expert guidance.

» Tax Implications

Both funds are equity-oriented. So, the taxation follows equity mutual fund rules.

If sold within one year, gains are short-term and taxed at 20%.

If held beyond one year, long-term capital gains above Rs 1.25 lakh in a year are taxed at 12.5%.

This makes long-term holding more tax-efficient. A Certified Financial Planner can help you plan redemptions or switches with proper tax optimisation.

» Assessing Portfolio Fit

Before deciding to continue or add more lumpsum, check your overall portfolio mix. If your portfolio already has diversified equity or hybrid funds, a small portion (not more than 10-15%) can be in thematic funds like these.

But if your portfolio is dominated by such sector-based funds, it may lack stability. In that case, a rebalancing with the help of a CFP is needed.

» Lump Sum vs SIP Decision

If you still wish to invest fresh money, avoid full lump sum in these funds. Instead, use a Systematic Investment Plan (SIP) or Systematic Transfer Plan (STP).

This spreads risk, reduces timing pressure, and gives smoother entry. It also builds habit and discipline.

» Importance of Regular Review

Every six to twelve months, review your fund performance. Check if the fund still follows its strategy and maintains consistency.

Your Certified Financial Planner can analyse rolling returns, consistency, and risk measures. They can decide whether to hold, switch, or rebalance based on changing market conditions.

» Aligning Investments with Goals

Before you invest further, define your goals clearly — like retirement, children’s education, or wealth creation.

These thematic funds are suitable only for long-term goals beyond 7 to 10 years. For shorter goals, they may add unnecessary volatility.

Goal-based investing ensures you know when to invest, how much, and when to redeem.

» Risk Control Through Allocation

No single fund should dominate your portfolio. You can hold a combination of diversified equity funds and hybrid funds as the base.

Then add small exposure to thematic funds for extra growth. A Certified Financial Planner will help you decide the right percentage based on your age, income, and goals.

» Common Mistakes to Avoid

Investing large lump sum without goal clarity.

Holding multiple thematic funds from same sectors.

Redeeming early due to temporary underperformance.

Ignoring portfolio overlap and risk concentration.

Believing direct plans always give better results.

Avoiding these mistakes keeps your wealth journey stable.

» Importance of Staying Long-Term

Both contra and PSU funds need patience. Their themes take time to deliver. Don’t expect quick returns in one or two years.

If you can stay invested for 7 years or more, they can reward you well. But stay under professional monitoring to ensure your fund choice remains suitable.

» 360-Degree Financial Planning

Your mutual fund choices are only one part of your total financial plan. A Certified Financial Planner will help you integrate other aspects like:

Emergency fund.

Health and life insurance.

Goal-based asset allocation.

Retirement and tax planning.

Periodic rebalancing and behavioural coaching.

This full-circle approach ensures you build wealth steadily and safely.

» Finally

Both contra and PSU funds are capable of good returns. But they carry high risk and need long patience. Investing lump sum in direct plans is not ideal, as it lacks professional supervision and increases emotional risk.

The better way is to invest through regular plans under a Certified Financial Planner. Use SIP or STP for smoother entry. Maintain these funds as small parts of your long-term portfolio.

This guided and disciplined path will help you create wealth with clarity and confidence, without unnecessary worry about timing or volatility.

Best Regards,

K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in

https://www.youtube.com/@HolisticInvestment