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Negative Returns on PSU Equity Fund: Should I Stop Investing?

Ulhas

Ulhas Joshi  | Answer  |Ask -

Mutual Fund Expert - Answered on Sep 09, 2024

With over 16 years of experience in the mutual fund industry, Ulhas Joshi has helped numerous clients choose the right funds and create wealth.
Prior to joining RankMF as CEO, he was vice president (sales) at IDBI Asset Management Ltd.
Joshi holds an MBA in marketing from Barkatullah University, Bhopal.... more
Asked by Anonymous - Sep 08, 2024Hindi
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I have invested 10k in Invesco psu equity fund which is giving me negative returns should I stop investing in psu funds at this time

Ans: Hello & thanks for writing to me. Invesco PSU fund is a well-managed fund which has to majorly invest only in PSU enterprises. . Thematic funds can underperform or give low returns when the underlying theme does not do well.

You may consider investing in funds with a broader scope like a multicap fund or a flexicap fund which can invest across market capitalizations & across different schemes & sectors.
DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.
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Ramalingam

Ramalingam Kalirajan  |8106 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Sep 22, 2024

Asked by Anonymous - Sep 08, 2024Hindi
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I have invested 10k in Invesco psu equity fund which is giving me negative returns should I stop investing in psu funds at this time or reduce sip amount to 5k
Ans: Public Sector Undertaking (PSU) funds can sometimes show volatility, especially in the short term. Since you’ve noticed negative returns from your Rs. 10,000 investment, it’s understandable to feel concerned. Let’s break down the situation to help you decide whether to stop or reduce your Systematic Investment Plan (SIP) in PSU funds.

Long-Term Nature of PSU Investments
First, it’s important to appreciate that PSU funds are typically more volatile because they are heavily influenced by government policies, economic cycles, and sector-specific challenges. These funds are not known for consistent short-term returns but are better suited for long-term investors who are patient.

If your investment horizon is more than five years, you might still see recovery and positive returns as PSUs tend to perform well in certain market phases. If you reduce or stop your investment now, you may miss out on potential future gains. So, patience can be rewarding here.

Negative Returns: Short-Term Market Fluctuations or a Deeper Concern?
It is quite common to see negative returns during volatile periods. However, negative returns do not always indicate poor fund performance. The market as a whole might be going through a down phase, and PSUs tend to react more dramatically. It’s critical to evaluate the following factors before making any decisions:

Fund’s Track Record: How has the fund performed in the past, particularly over 3, 5, or 7 years? If its long-term performance is strong, then short-term negative returns are not necessarily a red flag.

Sector Outlook: Are there any changes in the sector or government policies that could impact PSU stocks? A sectoral slowdown or specific challenges for PSUs may result in underperformance for the time being.

Your Investment Horizon: If your financial goals are far off, it may make sense to continue your SIP and ride out the market fluctuations. However, if you need the money sooner, reducing your exposure could be worth considering.

Consider Diversification Over Complete Exit
If the volatility in PSU funds is a concern, you don’t need to stop investing entirely. Instead, reducing your SIP amount from Rs. 10,000 to Rs. 5,000 can be a more balanced approach. This strategy allows you to keep some exposure to PSU funds, which could benefit from sectoral rebounds in the future, while freeing up money for other more stable investments.

Reducing the SIP amount can give you peace of mind while maintaining long-term potential in your portfolio.

Benefits of Actively Managed Funds
Rather than focusing solely on PSU funds, you may want to allocate part of your investment to actively managed funds. Unlike index funds or ETFs, actively managed funds have professionals making informed decisions about which stocks to buy and sell. This gives you the benefit of market insights and adjustments based on performance. It can help stabilize your returns, as these funds are often more diversified across various sectors.

This diversification lowers the risk of overexposure to a single sector, such as PSUs. By spreading your investment across multiple sectors through actively managed funds, you can improve your portfolio’s balance.

Avoiding Index Funds and Direct Mutual Funds
It is important to understand that index funds, though cheaper, are not always the best option. They simply mimic the index and lack the flexibility to shift when market conditions change. This can expose you to more risk, especially when sectors like PSUs face challenges.

Direct mutual funds might seem like a good choice to save on commissions, but they often require extensive market knowledge. For most investors, it is better to work with a Mutual Fund Distributor (MFD) who has a Certified Financial Planner (CFP) credential. They can help you select funds that align with your financial goals and risk profile.

Alternatives for More Stability
If PSU funds are causing too much concern, you could consider reallocating part of your investment to funds with more stable returns. For example:

Balanced Advantage Funds: These funds automatically shift between equity and debt based on market conditions. They can offer a more balanced risk-return profile, making them less volatile compared to PSU-focused funds.

Debt Funds: For those who want to focus on stability, debt funds offer consistent returns with lower risk. They are a good way to generate steady income while reducing exposure to volatile sectors.

By reallocating some of your SIP into more balanced or debt-oriented funds, you can manage your risk more effectively without exiting the market altogether.

Regular Review of Your Portfolio
It’s essential to periodically review your portfolio and see how different funds are performing. While PSU funds might not be delivering now, regular assessment with the help of a Certified Financial Planner can provide you with insights on whether to hold, switch, or reduce your investments.

If the overall performance of your portfolio is aligned with your long-term goals, a short-term dip in PSU fund performance might not be a reason to panic. Staying invested through market cycles is often the best way to grow wealth over time.

Final Insights
In summary, your investment in PSU funds might be showing negative returns now, but that doesn’t necessarily mean it’s time to exit entirely. Here’s a quick action plan:

Evaluate the Fund’s Long-Term Performance: Don’t make decisions based on short-term dips. Look at the track record and sector outlook.

Consider Reducing, Not Stopping: Reduce your SIP to Rs. 5,000 rather than stopping entirely. This keeps you invested while freeing up money for other options.

Diversify Into Actively Managed Funds: Use part of your investment in actively managed funds for more stability and potential growth. Avoid direct mutual funds and index funds due to their limitations.

Reallocate to More Stable Funds: Consider adding balanced advantage or debt funds to reduce volatility.

Review Regularly: Keep assessing your portfolio’s performance with a CFP to stay on track.

By following these steps, you can make a more informed decision about whether to continue, reduce, or stop your SIP in PSU funds.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Instagram: https://www.instagram.com/holistic_investment_planners/

..Read more

Ramalingam

Ramalingam Kalirajan  |8106 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jan 02, 2025

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Can I switch aditya birla sun life psu equity fund direct growth as it gives negative return ?
Ans: Switching a fund based on short-term performance needs careful analysis. A negative return doesn't always indicate a poor choice. Let us assess your decision to switch from this fund and recommend a holistic strategy.

Understand the Fund's Performance
1. Assess Historical Returns

Review the fund's long-term performance.
Check if it has consistently underperformed its benchmark.
2. Compare Sector-Specific Trends

PSU equity funds rely on government-sector performance.
Negative returns could reflect temporary sector underperformance.
3. Analyse Fund Manager's Strategy

Evaluate the fund manager’s approach during market downturns.
Look for changes in the portfolio that might indicate future growth.
Reasons to Consider Switching
1. Consistent Underperformance

Switch if the fund underperforms over 3–5 years compared to peers.
This reflects a fundamental weakness in its strategy.
2. Misaligned Investment Goals

PSU equity funds focus on government-driven sectors.
Switch if your goals require broader diversification or different sectors.
3. High Risk or Volatility

Sectoral funds carry high concentration risk.
If this risk doesn't match your profile, switching is sensible.
Evaluate Alternatives
1. Actively Managed Funds

Choose diversified funds with proven track records.
These can provide balanced exposure across sectors.
2. Flexi-Cap Funds

These funds offer flexibility across market capitalisations.
They can adapt to changing market conditions better.
3. Balanced Advantage Funds

They balance equity and debt exposure dynamically.
These are suitable for conservative investors.
Tax Implications of Switching
1. Equity Fund Taxation

LTCG above Rs. 1.25 lakh is taxed at 12.5%.
STCG is taxed at 20%.
2. Consider Holding Period

Switch only if benefits outweigh tax costs.
Holding for a longer period may reduce tax liability.
Additional Considerations
1. Regular Portfolio Reviews

Review your investments annually with a Certified Financial Planner.
Ensure alignment with your financial goals.
2. Avoid Emotional Decisions

Negative returns can trigger impulsive decisions.
Base switching decisions on thorough analysis.
3. Focus on Long-Term Goals

Investment success relies on patience.
Give funds sufficient time to perform before making changes.
Final Insights
Switching a fund requires in-depth evaluation of its performance, alignment with goals, and risk tolerance. If consistent underperformance persists, explore diversified alternatives to optimise your portfolio. Work closely with a Certified Financial Planner to ensure your investments remain aligned with your objectives.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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

..Read more

Ramalingam

Ramalingam Kalirajan  |8106 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Dec 18, 2024

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Sir I have been investing in quant psu fund ,SIP of 5k every months, since feb 2024 . Its performance is very very poor, since I have invested, even my principle amount has already drown in june ???????? Since I'm continuing my SIP regularly Kindly please advice me should i continue or make exit.
Ans: Your commitment to regular SIP investment is highly appreciable. Staying disciplined is a key strength in wealth creation. However, the underperformance of your fund requires a detailed review.

Performance Assessment of Sectoral or Thematic Funds

Sectoral funds, like PSU-focused funds, are dependent on specific sectors' performance.

They carry higher volatility compared to diversified equity funds.

Short-term market fluctuations may lead to temporary underperformance.

Limitations of Investing in Sectoral Funds

Lack of diversification increases risk due to sector concentration.

Performance is highly cyclical and depends on external factors.

Long-term patience is crucial as short-term results can be misleading.

Reviewing the Investment Horizon

Your SIP started recently, in February 2024.

Sector-specific funds often require a longer horizon for results.

Assess if your financial goals align with the fund’s nature.

Key Considerations Before Exiting the Fund

Check the fund's portfolio quality and sector exposure.

Analyse if the fund manager's strategy aligns with your objectives.

A Certified Financial Planner can help evaluate alternatives.

Should You Exit or Continue?

Exit if the fund consistently underperforms its benchmark and peers.

Continue if market conditions for the sector improve soon.

Consider switching to a diversified equity fund for stability.

Benefits of Diversified Equity Funds Over Sectoral Funds

Diversified funds spread risks across sectors and companies.

They offer better consistency in returns over the long term.

Active fund management adjusts investments based on market trends.

Role of a Certified Financial Planner

A Certified Financial Planner helps align your investments with your goals.

They provide insights on market trends and fund strategies.

Regular portfolio reviews ensure investments stay on track.

Tax Implications of Exiting Your Fund

If held for less than one year, STCG tax applies at 20%.

Gains above Rs 1.25 lakh held over a year incur 12.5% LTCG tax.

Understand the tax impact before making an exit decision.

Final Insights

Your SIP investment shows your financial discipline and focus. Review the fund’s performance with expert help. If it misaligns with your goals, consider switching to a diversified equity fund. Long-term planning ensures financial stability and growth.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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

..Read more

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DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Investment in securities market are subject to market risks. Read all the related document carefully before investing. The securities quoted are for illustration only and are not recommendatory. Users are advised to pursue the information provided by the rediffGURU only as a source of information and as a point of reference and to rely on their own judgement when making a decision. RediffGURUS is an intermediary as per India's Information Technology Act.

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