ICICI Pru Services Industries Fund-Returns of 35% in one year-Don't get tempted
Last week there was comment from Aparna who is working in an MNC company indicating she is going ahead to invest in ICICI Pru Service Industries Fund which gave 35% returns in last 1 year. Since this is diversified mutual fund and Crisil rates this as Rank-1, it attracted every one’s attention. I have indicated to Aparna that I would analyse and come back on this mutual fund scheme. This MF scheme would be renamed to ICICI Pru exports and other services fund w.e.f. 2-Sep-2013. Read this article before investing in such mutual funds.
ICICI Prudential Services Industries Fund – (Would be renamed to ICICI Pru Exports and other services fund w.e.f. 2-Sep-2013)
This fund is not new. This mutual fund has been launched in 2005. This mutual fund is under performer for several years. It has provided below average returns for many years. However in last one year, this fund performance has boosted and it provided returns of 35% in last one year.
Where does ICICI Pru Service Industries Fund invest?
This is diversified multi-cap fund. It invests in large cap companies, mid-cap and small-cap companies. Its primary allocation is to invest 40% in large cap sector, 24% in mid-cap and 24% in small-cap sector companies. Due to volatility in mid-cap and small-cap, this mutual fund has been under-performing for several years.
How the fund performance has improved now?
Currently ICICI Pru service industries fund invest 43% of its portfolio in IT sector, 41% in Pharma sector and 5% in media and balance in cash and debt. Means it invests majorly in IT and Pharma. Due to rupee value deprecation against the dollar, all IT companies will have good gains. All earnings in dollars can be converted at Rs 66 / Rs 67 compared to Rs 55 conversion rates which was there 6 months back. Means this fund is heavily gained momentum as IT stock prices has increased with this fall in rupee value against dollar.
How would be the performance of ICICI Pru service Industries Fund look in future?
While we may not exactly predict the returns of this fund, the gains which are received now would not repeat in future. The rupee value depreciation against dollar and IT industry growth and Pharma sector growth impact heavily on this mutual fund scheme.
What should be the strategy then?
If you have invested in this mutual fund scheme, it is the time to book profits and exit. If you still want to take some risk, you can continue holding and exit over a period of time. It is not advisable to enter into fresh investments into this scheme at this point of time. Rupee to Dollar deprecation may not last long time. The rupee to dollar rate can bounce back. If you observe the trend in last few years, rupee gets depreciated against dollar up to 20% whenever there are elections in India. Once the elections are over, it would try to recover. I am not saying that it would again come back to Rs 55 per dollar, but there are greater chances that rupee would appreciate against dollar.
Conclusion: While the fund looks attractive, consider these points before investing in such fund. This fund is under performer in the last 7 to 8 years and just gained momentum in last 1 year to 1.5 years.
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ICICI Pru Services Industries Fund
(would be renamed to ICICI Pru Exports and other services fund w.e.f. 2-Sep-2013)