I have about 20% of my mutual fund portfolio in one mid-cap fund . Apart from this, I have three large-cap funds and one gold exchange-traded fund. I want to exit the latter as it was an ill-advised purchase. I invest in one of the large-cap funds through SIP; others as lump sum. Would it be appropriate to have another mid-cap fund?
—Lalima Bhandari
The performances of mid-cap funds are largely dependent on the ability of a fund manager to make astute, well-timed stock picks in the market. Due to this subjective factor, the variance between one fund and another in this category could be quite large. Consequently, as an investor, it would always be better to go with multiple options in this category to obtain a diversification of fund management styles in one’s portfolio. So, yes, it would be a good idea to go with adding a mid-cap fund. However, please note that these funds also tend to be risky and volatile. Hence, it would be better to do an SIP on them and get the benefit of cost averaging, rather than do a lump sum investment and expose oneself to the risk of bad market-timing.
I am 28 and want to invest Rs2,000 in Birla Sun Life Midcap Mutual Fund for 5 years. Please suggest if I should go ahead with it.
—Amal Sarkar
As a young person seeking to invest a relatively small amount, I am guessing that you are new to investing. For somebody who is just looking to get off the starting block, the scheme you have chosen is probably a risky choice. The Birla Sun Life Mid-cap Fund, as the name indicates, invests in medium- and small-sized companies in the market. This segment of the market is subject to a lot of volatility and carries downside risks. For a novice investor, this would not be an appropriate choice.
A better choice would be a balanced fund such as Birla Sun life Balanced ’95 Fund, a scheme that invests in both equity and debt markets and thus carries lesser risk (debt market investments, in general, are less riskier than stock market investments). In case you feel that such a fund is too tame for your requirement, and as a young person you want to take more risk, you can go for a large-cap oriented diversified fund such as Birla Sun life Frontline Equity Fund, a scheme that invests in large companies, which is a relatively more stable segment of the market. Starting off with one of these two funds would be the way to get your investments off the blocks.
I am 30 years old, single and new to mutual funds. I earn Rs40,000 a month, and my expenses are Rs30,000. I plan to invest Rs5,000 per month (Rs1,000 for each category) in mutual funds through systematic investment plans. Please guide me to select one scheme from these five categories or suggest alternatives.
Equity large-cap
—SBI Bluechip Fund-direct growth
—Kotak Select Focus-direct growth
Small and mid-cap
a) DSP BlackRock Micro-cap Fund-direct growth
b) Mirae Asset Emerging Bluechip Fund-direct growth
Diversified Equity
a) Birla Sun Life Equity Fund-direct growth
b) Principal Emerging Bluechip Fund-direct growth
Equity linked savings scheme (ELSS)
a) Reliance Tax Saver Fund—direct growth
b) DSP BlackRock Tax Saver Fund—direct growth
Balance Fund
a) HDFC Balance Fund
b) ICICI Prudential Balanced Fund
—Prasad Ramesh Naik
For someone who is just starting off with investing in mutual funds, you’ve assembled a decent set of funds for consideration. For one, you have understood that allocation to different categories of funds across different fund houses is important for achieving proper diversification and best-of-breed choices. The asset allocation you have designed for your portfolio, however, is a very risky one. There is only about 5% allocated to debt instruments, with 95% going to equity investments. Please resolve to stay invested in this portfolio for the long haul (more than 5-7 years) to reap the maximum benefit.
Within equity, you have allotted 20% to large-cap and 20% to small- and mid-cap funds, with the remaining 55% going to diversified allocations. Coming to fund choices, you can go with Kotak Select Focus fund in the large-cap category and Mirae Asset Emerging Bluechip fund-direct growth in the mid-cap category.
HDFC Balanced fund is a solid choice for its category. On the other two categories—multi-cap and tax-saving—we would recommend Franklin India Prima Plus fund for the former and ICICI Prudential Long-term Equity fund for the latter category.
Srikanth Meenakshi is co-founder and COO, FundsIndia.com.
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