Why you should watch over your mutual fund

n equity diversified fund invests in shares of companies from various sectors. So you will have companies from the tech sector, petroleum sector, cement and so on and so forth.  

Which, in theory at least, sounds rather good. But, sometimes, the fund manager (the person who decides how the fund's money will be invested) tends to go a little overboard on one sector or company.

For instance, many equity diversified and tax-planning funds (equity funds that give the investor a tax break) tend to favour the technology sector.

In case you did not know, technology is the hottest sector amongst fund managers.

• Is your fund safe?

Consider this!

~ As on March 31, 2005, 47 of the 125-odd equity diversified and tax-planning funds had technology as their top sector.
- Of these 47, 26 had a quarter of their portfolios (the term used to describe the total worth of a fund's investments) invested in tech stocks.
- Overall, 86 funds had technology in their top five sector allocations (sectors where most of the fund manager's portfolio is invested).

On April 15, they must have regretted it. The prices of tech stocks tumbled and the BSE IT Index (the stock index that monitors movement of infotech stocks) was down 6.17%.

• Sensex? What's that?

Kotak Tech's fund manager must have dreaded Friday's NAV calculation. The fund has invested half -- yes, you read that right! -- its portfolio in Infosys. Whose stock price dropped by nearly 7% on April 15. 

The fund's other top holdings -- Wipro and TCS -- lost heavily as well.

Though Infosys is the darling of all funds (and even more so with tech funds), none match the favour shown by Kotak Tech.

Take a look at these figures

You can see how much of the total portfolio of these funds finds its way into technology and how much is invested only in one company: Infosys.

The lesson of the day

When you invest in a fund, don't just put in your money and forget about it.

Watch over it.

The funds keep coming out with a quarterly portfolio declaration.

You can also keep tabs by visiting your fund's Web site.

See if too much money is going into one sector or one stock.

If you find that the fund is too centred on one sector (remember we are talking of diversified equity funds here) and it makes you uncomfortable, you should consider getting out.

Ditto if you find too much money invested in one stock.

Look at it proportionately.

For instance, a fund manager may invest Rs 100 in Company A and his total portfolio may be worth Rs 1,000. This means he has invested 10% of his portfolio in Company A.

Another fund manager may invest Rs 200 in the same company, but his total portfolio may be Rs 5,000. So, though Rs 200 is more than Rs 100, it is just 4% of the fund's portfolio.

Remember, it is your money after all.