Stuck with a Losing Investment: Invesco India PSU Fund Down 9K - Should I Switch or Wait?

Ans: mutual fund investing is not a short term game, you have to stay invested for atleast 5yrs to see the benifits.

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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.

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

Ans: You invested Rs 50,000 in a PSU-focused mutual fund in July 2024.

Now, in February 2025, the investment has dropped by Rs 9,000, which is an 18% loss.

PSU funds are sectoral/thematic funds. Their performance depends on government policies, interest rates, and economic cycles.

These funds can be highly volatile. They may deliver strong gains in a bull market but underperform in a weak market.

Your concern is whether this fund will recover in the current market.

You are also considering switching Rs 41,000 to a hybrid or flexi-cap fund.

Let us assess whether you should stay invested or switch.

Will the PSU Fund Recover?
PSU stocks have cyclical movements. When the economy expands, they perform well. When it slows down, they struggle.

Government disinvestment policies and reforms also impact PSU stocks. If the government promotes efficiency, PSU stocks may rise.

Interest rate changes affect banking and financial PSUs. A high-interest-rate environment may hurt them.

Budget announcements and fiscal policies can boost or pull down PSU stocks. If there are favourable announcements, the fund may recover.

Global commodity price fluctuations impact PSU companies in oil, gas, and metals.

If market conditions improve and policy support is strong, PSU stocks may recover. But timing is uncertain.

Risks of Holding the PSU Fund
Sectoral and thematic funds focus on one segment of the market. This increases concentration risk.

PSU stocks are not always investor-friendly. Many have inefficiencies, slow decision-making, and government interference.

There is no guarantee that PSU stocks will continue their rally. If economic conditions worsen, recovery may be slow.

The fund’s underperformance in the last few months indicates its sensitivity to market cycles.

If the fund fails to recover, your losses may increase further.

Should You Switch to a Hybrid or Flexi Cap Fund?
Hybrid Fund Benefits
Hybrid funds invest in both equity and debt, reducing volatility.

Debt allocation cushions against market downturns.

Equity exposure ensures long-term capital appreciation.

Less risky than a pure equity PSU fund.

Suitable if you want lower volatility and moderate growth.

Flexi Cap Fund Benefits
Flexi cap funds invest across large, mid, and small-cap stocks.

The fund manager has the flexibility to shift between market capitalisations based on opportunities.

This diversification reduces risk compared to sectoral/thematic funds.

These funds provide long-term capital growth with better risk-adjusted returns.

Suitable if you want a more balanced growth-oriented approach.

Factors to Consider Before Switching
If you are comfortable with short-term volatility and believe PSU stocks will recover, you can hold the fund.

If you prefer lower risk and steady returns, shifting to a hybrid fund is a better choice.

If you want long-term growth with diversification, a flexi-cap fund is a good option.

Consider your investment horizon. If you need the money in the short term, a hybrid fund is better.

If you are investing for 5+ years, flexi-cap funds offer better long-term potential.

Your risk tolerance also matters. If you are uncomfortable with high volatility, shifting makes sense.

Taxation Impact of Switching
If you sell before one year, short-term capital gains (STCG) apply.

STCG on equity funds is taxed at 20% under the new tax rules.

If you wait for one year, long-term capital gains (LTCG) above Rs 1.25 lakh are taxed at 12.5%.

If you switch to a hybrid fund with debt exposure of over 35%, gains will be taxed as per your income slab.

Consider these tax implications before making a switch.

Best Approach for Your Situation
If you are willing to hold and take the risk, wait for recovery. But monitor closely.

If you are uncomfortable with PSU volatility, switching to a hybrid or flexi-cap fund is sensible.

If you want stability with some equity exposure, a hybrid fund is better.

If you want long-term growth with diversification, a flexi-cap fund is better.

Make sure your overall portfolio is diversified. Avoid too much exposure to one sector.

Final Insights
PSU funds are cyclical. They may recover if market conditions improve.

However, concentration risk is high, and government policies can impact performance.

If you want lower volatility, shifting to a hybrid or flexi-cap fund is a smart move.

Consider your risk tolerance, investment horizon, and taxation before making a decision.

The key is to have a well-diversified portfolio that aligns with your financial goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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