Should I exit from Tata Digital India Fund?

Published: June 6, 2022 at 6:00 am

A reader asks,” Sir, I started investing in Tata Digital India fund in Sep 2021. The NAV has been continuously falling since then. What should I do? Exit or continue to hold? Please advise”.

We asked the reader, “Why did you choose this fund?”. Response: “I thought it would be a good idea to diversify into tech stocks”. That is the stock response investors give when thing don’t go their way. So we persisted: “Why did you really choose this fund?” Response: “I was impressed with its recent performance”.

Thank you for telling the truth. Interest has increased in Tata Digital India because of how it performed after the March 2020 crash. Looking at the recent performance of a fund and investing is one of the worst mutual fund investing mistakes. Our hard-earned money needs a lot more respect than this!

The Nifty IT index is compared with the Nifty 50 below. What appeals more to you? The oval region or the rectangular region?

Nifty IT total returns index vs Nifty 50 total returns index
Nifty IT total returns index vs Nifty 50 total returns index.

If the oval region appeals to you, you are distracted by the fund’s recent performance and are paying the price for this over the last six months. If the rectangular region appeals to you, you recognise that the IT sectoral index has not outperformed the Nifty for 16 years after the dot com crisis. Such a situation may repeat in the future. The recent tech surge and fall also bears a vague resemblance to the dot com boom and bust.

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    Now take a look at the since inception NAV of Tata Digital India Fund. The fund did not beat Nifty 50 or Nifty IT for the first four years after inception. Only after the March 2020 crash, the fund outperformed. If the tech fall continues, the fund and the IT benchmark may soon get close to the NIfty 50 erasing all the gains achieved since March 2020.

    Tata Digital India Fund vs Nifty IT total returns index vs Nifty 50 total returns index
    Tata Digital India Fund vs Nifty IT total returns index vs Nifty 50 total returns index.

    This is, of course, the problem with sectoral or thematic funds. When they outperform, they stand out, and investors boast about their great choices. When they underperform, they also stand out, and investors claim they have a diversified portfolio.

    We recommend that the reader who wrote to us exit the Tata Digital India fund and stay away from thematic funds. The reader did not choose the fund for the right reasons, and his journey with it is likley to be frustrating.

    We recommend that investors stay away from funds with a narrow investment mandate. A “small exposure” to such funds will not make a big difference to the portfolio and only add to the clutter and distract the investor. A sectorally well-diversified fund will avoid both the euphoria and the agony and is a better choice “over the long term”.

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      Pattabiraman editor freefincalDr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over nine years of experience publishing news analysis, research and financial product development. Connect with him via Twitter or Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.
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