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Can I get some clarification on my investment in Sundaram Select Focus Fund

I have attached an excel sheet about my investment in Sundaram Select focus Mutual fund - dividend reinvest. I started my investment in 14/01/2013 till 14/12/2015 by investing Rs.5000 pm. with a view to get dividend and growth on my invested amounts via SIP. However unfortunately not much growth nor dividend till July 2016. But since August 2016 it gave quarterly dividend of rs. 1, 0.5, 0.5, 0.5 and last on 16 August 2017 of 0.25 (Disappointed a bit on last dividend rate). I invested in the scheme with full knowledge of the past but I came across articles written by Sri Dwaipayan Bose and would like him to reply my queries. Sir my queries are as follows: 1) After having invested in this scheme how I should view my returns or growth going forward in this scheme. 2) As you can see I have invested in this fund since 3 and a half years, now how I should look at my returns in sense of absolute / per annum basis / trailing returns etc. If you could explain in detail as to what points an investor should should look in the fund, it would change our view of looking at returns. Or all are important. 3) sir as you can also see the dividends are not fixed but the fund manager is trying to make it look attractive so that people invest. I do not mind not getting dividends as long as the fund performs and there is a visibility of growth of my portfolio value in total. 4) Sir if you have another example / fund which explains my query better please let me know through that example, as my fund selection may not give a long term view so as to understand your thoughts. Sir your articles are good but examples are not there. Hence I request you to take some time and explain to investor community at large as to how our approach should be towards our investment, so that we would change and equally learn as how we should view our investments?

Sep 4, 2017 by Vivek Sethi, Bangalore  |   Mutual Fund

Sorry for the late reply. Let us address your questions / comments one by one.

Let us address questions 1 and 2 together because they are related. Trailing returns are not applicable for SIP investments, because the investment is made on multiple dates. Absolute returns can be used. As per the excel spreadsheet attached by you, your cumulative investment was Rs 180,000 and your investment value as on Aug 17, 2017 was Rs 270,854. You made a profit of Rs 90,854.

The best measure of SIP returns is XIRR because it takes into account dates on which the cash-flows (inflows and outflows) take place. Even though you calculated XIRR, there was a small mistake (dividend reinvestments are not cash-flows). I have corrected the mistake and used the recent (13/10/2017) NAV to re-calculate XIRR. As per my calculation the XIRR is 13.14%.

Sundaram Select Focus is a large cap fund. As such, 13.14% SIP return cannot be considered poor performance for a large cap fund. However, you have to decide, whether this meets your return expectations.

If you read our blog regularly, hopefully, you would have observed we say repeatedly that, mutual fund dividends are not and cannot be fixed. You should understand that dividends are paid from the profits made by the fund. Profit made by the fund depends on market conditions. Market conditions change from year to year (2017 is very different from 2016), quarter to quarter (first quarter of calendar year 2017 is very different from the third quarter). Therefore, the dividends were different.

Secondly, you should also understand that, an equity fund manager may not book profits in stocks with the sole purpose of paying dividends. If that was the case, the fund manager could have paid high dividends in 2014, when stock prices rallied a lot. A fund manager takes into account the valuation of a stock (price of a stock vis a vis the EPS of the stock) in deciding whether to book profits or not.

Regarding your point whether the fund manager wanted to make dividends look attractive for prospective we should not make any comment because it will be based on perception and not fair. The only point I would like to make here is that, based on our experience, most people invest based on returns given by a fund and not how much dividend it is paying. Even if people want to invest with the expectation of dividends, they should look at the long term dividend pay-out track record and not the track record of the last few quarters.

If you want to compare the performance of your fund with other large cap funds, simply compare the returns of your fund with top performing large cap funds. Since you have opted for dividend re-investment, your objective is not to get regular income but growth over a period of time. In terms of growth of investment, there is no difference between dividend re-investment option and growth option.

Based on your excel spreadsheet, you stopped your SIP in 2015 for reasons best known to you. However, if you continued to invest till today, your investment value would be Rs 4.03 lakhs on a cumulative investment of Rs 2.85 lakhs (please see our SIP return calculator). The XIRR would be 14.6%. Top performing large cap SIPs have given higher returns (close to 20%) over the last 5 years. So the performance of your fund is average, but it is definitely not poor.

Hope this answers your query. If you have more questions or need clarifications, please feel free to write to us.

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