'Regular profit-booking important for mutual fund investors'

Regular profit booking is important while investing in mutual funds says G Pradeep Kumar, CEO, Union KBC Mutual Fund. "Even if the Net asset value (NAV) of the fund goes from Rs 10 to Rs 20, I can say that the fund has performed but the investor doesn't make money until he books profits. The problem is that when the NAV goes up investors don't book profits, but when it goes down they start worrying," Pradeep Kumar told Money Today.

Union KBC Mutual Fund recently launched a three-year closed-ended fund Union KBC Trigger Fund Series-I. Under this fund, an investor will have to compulsorily redeem his/her investment any time during the three year period if the NAV rises 30 per cent.

"Although, in terms of business this is not a good product for the manufacturer as well as distributors as the money will be redeemed even if the fund rises 30% in the first few months.  But we wanted investors to benefit from it. Investors should ideally have returns target. If an investor invests in a fund for five year term with a target return in mind and achieves the target in three years then he should exit the fund put money into a debt fund like FMP. They should avoid being greedy," he says.

Although in case of a closed-ended fund, it is a possibility that the fund may not achieve the targeted returns. According to Pradeep Kumar,  they were aware of the risk, and so they did back testing to find out what were the chances of making 30% return. "We took a call on the market, like going forward how the market is going to perform and we found that the chances are good," he says.

Union KBC Mutual Fund, a joint venture between Union Bank of India and Belgian group KBC Participations Renta, started its operation in 2011. The fund house manages assets worth Rs 3,500 crore. It has It has a diversified large-cap equity fund, a tax-saver fund and a couple of asset allocation funds. Apart from these it has a liquid fund and a short-term bond fund. It has recently launched a small- and mid-cap fund, which is open for subscription till 3 June, 2014.

On the rationale of launching small- and Mid-Cap fund, Pradeep Kumar says, "If we look at the one, three and five year returns of midcaps we would see that they have outperformed large caps over all time periods. Although, we had the discussion that by the time we close the fund market would have already run up, but we believe this theme will do good in the next five years."

The past three years have not been the best for the mutual fund industry, which saw mass exodus of investors and exit of many smaller fund houses. But Pradeep Kumar says despite challenging conditions under which they started their business, they have been able to achieve significant volume. "We were able to add more than 1 lakh folios. About 65% investors we got were first time investors in mutual fund. We have also grown quite well on the institutional front."