My Aditya Birla Sun Life PSU Equity Fund SIP is Performing Poorly. Should I Continue?

Ans: It's a decent scheme in its category, please be invested.

Ans: First and foremost, it's important to understand that mutual fund investments, especially those in equity, are subject to market volatility. A loss of Rs. 5 over just 15 days is not uncommon and doesn’t necessarily reflect the long-term potential of your investment. Mutual funds, particularly equity-based ones, are designed for long-term wealth creation, and such short-term fluctuations should not deter you from your financial goals.

Importance of Your Investment Horizon
You've chosen to invest in the Aditya Birla Sun Life PSU Direct Growth Equity Fund with a horizon of 5 years. This is a reasonable time frame for equity investments to potentially grow. However, equity investments can be volatile in the short term, and it's crucial to maintain patience and discipline with your investments.

Benefits of Continuing Your SIP
Rupee Cost Averaging: By continuing your SIP (Systematic Investment Plan), you are buying more units when prices are low and fewer units when prices are high. This averaging effect can lower the overall cost per unit over time, which benefits you when the market eventually rises.

Compounding Over Time: Staying invested for the long term allows your investments to benefit from compounding. This means the returns you earn on your investment will also start generating returns, leading to exponential growth over time.

Market Recovery: Markets go through cycles of highs and lows. By remaining invested, you give your investment time to recover and potentially grow, which is essential for achieving your long-term financial goals.

Reassessing Your Fund Choices
Before making any decision to continue or redeem your investment, it’s wise to take a closer look at your current fund choice:

Fund Performance: Analyze the historical performance of the Aditya Birla Sun Life PSU Direct Growth Equity Fund over 3, 5, and 10 years. While past performance is not indicative of future results, it can give you insight into how the fund has performed across different market cycles.

Fund Objective: Ensure that the fund’s investment objective aligns with your own financial goals. PSU equity funds focus on public sector companies, which may have different risk and return profiles compared to more diversified equity funds. Understanding this will help you determine if this is the right fund for you.

Why You Might Want to Avoid Direct and Sectoral Funds
While direct funds may seem appealing due to their lower expense ratios, they come with certain drawbacks:

Lack of Advisory Support: Direct funds do not offer the same level of advisory support as regular funds. As a student or a beginner investor, having access to the guidance of a Certified Financial Planner (CFP) can be crucial. A CFP can help you choose the right funds, adjust your portfolio based on market conditions, and align your investments with your financial goals.

Market Timing Risks: Direct investors often make decisions based on short-term market movements, which can lead to poor timing and reduced returns. Investing through a CFP can help you avoid such pitfalls and ensure a disciplined investment approach.

Similarly, sectoral funds, like a PSU equity fund, focus on specific sectors of the economy, which can be risky:

High Risk and Volatility: Sectoral funds are concentrated in one sector, making them more volatile and riskier compared to diversified equity funds. If the sector underperforms, your entire investment may suffer.

Limited Diversification: Sectoral funds lack diversification, which is a key principle in reducing risk in an investment portfolio. A more diversified fund can spread out the risk across various sectors and companies.

Considering a More Balanced Approach
For a beginner investor, or even for someone with limited time to actively manage investments, a balanced and diversified approach is generally more advisable. Here’s why:

Diversified Equity Funds: These funds spread investments across various sectors and companies, reducing the risk associated with any one sector. They provide a safer way to benefit from the growth potential of equities while mitigating some of the risks.

Regular Funds Through MFDs with CFP Credential: By investing in regular funds through Mutual Fund Distributors (MFDs) with CFP credentials, you gain access to professional advice. They can help you choose funds that align with your risk tolerance, investment horizon, and financial goals. They can also provide ongoing support, making adjustments to your portfolio as needed.

Aligning Your Investments with Financial Goals
Given your long-term goal of a 5-year investment horizon, it’s important to align your fund choices with this timeline. Equity funds generally require a minimum of 5-7 years to realize their full potential. Choosing funds that offer diversification and professional management can help you achieve your goals more effectively.

Final Insights
It's important not to make hasty decisions based on short-term performance. Investing in mutual funds, particularly through SIPs, is a long-term commitment. The Rs. 5 loss you've observed is a normal part of the investment journey. The key is to stay the course and focus on your long-term goals.

Consider avoiding direct and sectoral funds due to their inherent risks and the lack of advisory support. Opting for diversified equity funds and regular funds through a Certified Financial Planner can provide you with a more balanced and safer investment strategy.

If you're uncertain about your investment choices or need personalized advice, consulting a CFP can be beneficial. They can provide you with the necessary guidance to optimize your investments and align them with your financial goals.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in

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’ve invested Rs. 50,000 in a PSU-focused equity mutual fund (direct growth) in August 2024. You are currently facing a notional loss of around Rs. 7,000.

Let’s evaluate your concern with a 360-degree analysis. We’ll consider fund nature, risk, tenure, emotional behaviour, tax impact, and expert support.

We truly appreciate your initiative in seeking proper guidance. It shows a responsible investment mindset.

Let’s assess this decision from all angles.

 

Nature of Investment Chosen
You invested in a sector-specific equity fund.

 

Sector funds are very high-risk and concentrated.

 

PSU theme is based on government-owned businesses.

 

These funds follow a very narrow investment style.

 

When sector underperforms, your entire fund gets affected.

 

Even good companies may fall if the sector is weak.

 

Sector and Volatility
PSU stocks are affected by government policy decisions.

 

Market may react to budget, reforms, or geopolitical news.

 

In short term, PSU funds can show deep falls.

 

This is part of the risk-reward structure in such funds.

 

Volatility is not a mistake; it is expected.

 

If you knew this before investing, you need not worry now.

 

Investment Duration
You invested just 8 months ago.

 

Equity mutual funds need more time.

 

Especially sector funds may take 3 to 5 years minimum.

 

Judging performance in 8 months is not meaningful.

 

Markets have up and down cycles.

 

Short-term dips are not real losses unless you redeem.

 

Long holding gives your investment time to recover.

 

Notional Loss vs. Actual Loss
Rs. 7,000 loss is not permanent unless you withdraw.

 

Current value is only a temporary figure.

 

If you sell now, you book this loss forever.

 

If you hold, there’s chance to recover and grow.

 

Investors often panic and redeem at wrong time.

 

That’s a behavioural mistake, not a market mistake.

 

Direct Funds and Investor Decisions
You chose a direct plan.

 

Direct plans lack expert guidance.

 

You are making decisions alone.

 

Without a Certified Financial Planner, mistakes can happen.

 

Many direct investors redeem early due to fear.

 

Regular plans offer support from CFP-certified professionals.

 

A CFP helps in review, correction, and long-term strategy.

 

That small extra cost brings big long-term value.

 

Emotional Bias in Investing
Losses create fear in most investors.

 

Fear may lead to bad decisions.

 

With equity, this emotional control is critical.

 

Long-term wealth is only possible with patience.

 

You must separate emotions from money choices.

 

Take help of a CFP who brings calmness and objectivity.

 

Tax Implication (As Per New Rules)
You invested in August 2024.

 

If you redeem before August 2025, gains (or losses) are short-term.

 

Short-term capital gains tax is 20%.

 

If there’s a loss, it can be carried forward for future tax benefit.

 

But we don’t advise redeeming now just to record this loss.

 

Let the investment complete its full cycle.

 

Investment Goal and Purpose
Was there a clear goal for this investment?

 

If yes, when is the goal coming up?

 

PSU funds are not suitable for short-term needs.

 

If you need money within 1 year, it’s not ideal.

 

If it’s a long-term goal, then hold tight.

 

Invest according to your time horizon, not just fund return.

 

Diversification Matters
PSU equity funds are too narrow.

 

You should avoid putting large sums in one sector.

 

Diversify across multiple sectors and styles.

 

Multi-cap, flexi-cap or large-cap funds give better balance.

 

Keep PSU exposure limited, not core holding.

 

A well-diversified portfolio reduces mental stress too.

 

Review and Restructure
Sit with a Certified Financial Planner.

 

Review your full portfolio, not just one fund.

 

Restructure based on goals and risk tolerance.

 

Build a mix of funds with different styles and caps.

 

Avoid repeating mistakes like overexposure to sectors.

 

Common Investor Mistakes to Avoid
Don’t react to short-term loss.

 

Don’t check NAVs every day or week.

 

Don’t follow social media fund tips.

 

Don’t chase highest return or lowest NAV.

 

Don’t switch between funds too often.

 

Stay steady and follow your plan.

 

What Should You Do Now?
Do not redeem now.

 

Let the investment complete minimum 3–5 years.

 

Meanwhile, avoid adding more in this one sector.

 

Start investing gradually in diversified equity funds.

 

Take help from a CFP to guide and monitor.

 

Do a portfolio review every year.

 

Continue investing with patience and discipline.

 

Key Takeaways from Your Situation
Loss in 8 months is not unusual.

 

Sector funds are volatile by nature.

 

Your decision should be based on goals, not returns.

 

Avoid emotional reactions like panic redemption.

 

You must work with a qualified CFP for guidance.

 

Shift from direct funds to regular plan with MFD-CFP support.

 

Always diversify and follow asset allocation.

 

Stick to your long-term strategy for real wealth creation.

 

Finally
Your concern is valid and understandable.

 

But early redemption will lock the loss permanently.

 

Sector fund performance takes time to show up.

 

Stay invested and consult a CFP for next steps.

 

Your journey to wealth is not a sprint, it’s a marathon.

 

Continue with patience, proper planning, and expert guidance.

 

Right investment decisions are not based on past returns.

 

They are based on goals, risk capacity, and time.

 

You have already taken the first right step—asking the right questions.

 

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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