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Tech funds: In dire straits

Oct 10, 2001

To put it more aptly, its the technology sector that is in dire straits. This has a direct impact on the fortunes of tech funds as is more than evident from their net asset values. Before we deliberate on the performance of tech funds, we must first understand the risk profile of these funds. Tech funds must ideally be a part of a high-risk investor’s portfolio, which means ‘younger’ investors (less than 40 years) can look at these funds for wealth creation over the long term. Investors over 40 years can give it a miss and should look at income funds for safety and consistency.

CHOLA FREE.TECH C 7.1 -12.3% -17.9% -52.2% -9.1%
PIONEER ITI INT. OPPORT.(G) 3.5 -23.1% -29.2% -53.7% -48.8%
SUN F&C EMEG TEC G 2.7 -19.5% -26.2% -58.0% -54.1%
PRU ICICI TECH G 2.1 -26.0% -32.6% -61.8% -63.0%
BIRLA IT G 6.1 -13.8% -26.2% -65.0% -6.5%
DSP ML TECH.COM G 2.7 -20.6% -28.5% -66.5% -56.7%
IL&FS ECOM G 1.9 -18.7% -33.4% -67.2% -71.0%
MAGNUM IT 4.6 -14.5% -33.1% -69.5% -14.0%
ALLIANCE NEW MI G 2.5 -32.5% -46.4% -70.4% -68.0%
PIONEER ITI INFOTECH (G) 8.0 -33.6% -42.8% -71.2% 17.6%
K TECH 2.0 -26.2% -40.6% -72.1% -61.9%
UTI SEC- SOFTWARE 4.6 -29.3% -45.5% -74.4% -33.5%

The domestic tech sector was already witnessing some harrowing times even before the September 11 attacks in the US. Leading tech companies in the country had downgraded their earnings forecast (in the last quarter) and had reported a dramatic fall in the quarterly earnings.

Post-US attacks, the domestic markets have witnessed one of their worst slides ever and this has only accentuated the problem further as far as the tech sector is concerned. Leading analysts in the US have drawn a very distressing picture of the technology sector.

To be sure, the scenario for the Indian tech sector isn’t as depressing. Most analysts and fund managers believe that current valuations are a lot more realistic and even attractive.

What does all this mean for the mutual fund investor? Our advice at this point of time as at all other times remains the same. Its all about the asset allocation strategy of the investor that suits his risk-return profile. Tech funds are sectoral funds and are high-risk high-return in nature. Investors who understand that and also appreciate the fact that these funds are long term investments (2-3 years) can invest in these funds at current levels. But for that you need to be young and patient. Investors who can’t the stomach the high-risk profile of a tech fund can invest in a diversified growth fund where software constitutes only a small portion (preferably less than 10%) of the portfolio.

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