Tracking Fund Performance

Q: In 2007, I had invested Rs 1 lakh each in Reliance Diversified Power and Reliance Growth Fund. What should I do with these now?

- Neeta Deshkar

A: In 2007, when you had invested in these funds, they were the two top performing funds and a must for portfolios. While Reliance Growth Fund is a Mid-Cap growth fund, Reliance Diversified Power is a Sector fund dedicated to investing in power and power-related companies.

Subsequent to the 2008 crash and the resulting global crisis, the relative performance of these funds has seen a decline. The power sector fund is an underperformer relative to the diversified funds, as the sector itself fell out of favour in 2010. There were a number of issues pertaining to policy making from the government’s side, which scared away investors in power-related companies. Since most of them were at high PE multiples at the time, the crash was harsh. Recovery is expected to take more time as there are too many uncertainties with regard to government policy. Though the fund has outperformed the BSE Power Index, it has underperformed the broader market or the Sensex.

Reliance Growth Fund became one of the largest Mid-Cap funds in terms of its corpus, which could have posed its own problems in managing a large corpus in Mid-Cap stocks. In any case, its performance has declined from the top quartile to the third quartile on a risk-adjusted returns basis. The Scheme Performance table will give you an idea of how some other good funds in the same category have fared – the divergence in performance becomes apparent.

Either you wait patiently and hope that the fund performance will improve, or you diversify your holdings. I am all for diversification – include another fund in the Mid-Cap space to hedge underperformance from one fund. If patience is not your virtue, then change the fund altogether.

I would also strongly advise that you include a Large-Cap fund in your portfolio, as it would not swing around as wildly as a Mid-Cap or Sector fund. The fund has outperformed the benchmark Mid-Cap index, but has not done as well as some others in the broad Mid-Cap category.

Tracking fund performance on an annual basis at least does require some time and attention from investors. In some cases though, even the annual performance is misleading, and this poses a problem for a retail investor who wishes to keep tabs on the fund. Instead, it would be a good idea to read up on fund performance in investment-related journals or to locate a good financial planner to help you in this task.

Scheme Performance

Top 10 Holdings