I have been investing in IDFC Infrastructure, L&T Emerging Businesses and L&T India Value funds via the SIP mode for the past two years. These funds are not doing well and are hurting me in monetary terms. Kindly advise me on whether I should continue investment by SIP or exit from these funds.

Ashim Banerjee

You have not mentioned your risk tolerance, time horizon, goal and the monthly amount invested in these funds.

You have been investing in the equity funds for the past two years. Equity funds are meant for long-term investments and are likely to generate negative returns in short time- frames such as one or two years. Moreover, the Indian equity market has not been doing well over the past year. Continuing the SIPs in better- performing equity funds during downturns will help achieve rupee cost averaging (buying more units when the NAV is low).

However, it is always better to shun funds that have underperformed their categories consistently for 12-15 months.

IDFC Infrastructure Fund is a sector fund. Most of the funds in the infrastructure category have delivered mediocre returns in the past few years due to the challenging environment in the space. Secondly, unlike a few other infrastructure funds that invest also in banks and auto sectors, IDFC Infrastructure invests only in the core infra sector. This had led to the fund underperforming its peers. The fund has been rated three-star by BusinessLine Portfolio Star Track Mutual Fund Ratings .

Thirdly, relatively high exposure to small-caps and logistic stocks has dragged down the performance of IDFC Infrastructure. Considering its higher exposure to sectors such as construction, logistics and capital goods, the fund may do well in a growing economic environment.

The scheme is recommended only to highly informed investors. Sector funds are concentrated bets, going through highly rewarding phases, followed by prolonged rough patches. If you have a high risk appetite and necessary knowledge to time your entry and exit, you can hold this scheme. Else, you can sell and spread the investment across other funds.

L&T Emerging Businesses is one of the top- performing funds in the small-cap funds category. The fund has not been rated by BusinessLine Portfolio Star Track Mutual Fund Ratings due to it short NAV history of less than seven years. The stocks in the small-cap spectrum have been in the doldrums over the past year. The S&P BSE SmallCap TRI has tumbled 22 per cent while the fund has corrected by 17 per cent during the period. This steep correction provides an opportunity for investors with an appetite for high risk to allocate a certain portion of their portfolio in the small-cap space through the SIP route. You can continue to hold the fund.

L&T India Value follows a value-investing approach with a large-cap focus. It is a good choice in the value-investing category. The scheme has been rated five-star by BusinessLine Portfolio Star Track Mutual Fund Ratings. You can continue holding the fund.

Holding 5-6 funds in your portfolio provides you ample diversification. Assuming that you are an investor with medium to high risk profile, you can add Mirae Asset Emerging Bluechip (a large- and mid-cap fund) and Aditya Birla Sun Life Frontline Equity (large-cap fund). They are rated five- and four-star, respectively, by BusinessLine Portfolio Star Track Mutual Fund Ratings .

Send your queries to mf@thehindu.co.in