I have started investing in three funds around two months back. The funds are-HDFC Balanced Advantage, Kotak Standard Multicap and ICICI Bluechip. Have I chosen good funds for a horizon of 10 years?
Also, I wanted to know which is a better option between mutual funds and NPS Tier II. I am a government employee and NPS Tier I is mandatory for me.
- Vikas
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If you would have asked me two months back before starting your investment, then I would have advised you to start with only balanced fund. When you invest in a largecap fund, you are directing the fund manager to only invest in largecap stocks. I feel this is a very narrow view. When you are investing for a long term, the fund manager should be given complete freedom. This is available in a multicap fund, Kotak Standard Multicap in your case.
Also, most of the active largecap funds have not been able to beat the Nifty or the Sensex index funds lately. This is primarily because of two reasons. In the last one year, the index has been driven by two-three stocks and fund managers are not able to take that view. The second reason is the higher expense ratio in case of actively managed funds. Any active fund would have to give 1.5 to 2 per cent more returns because of the higher expense ratio to match the returns of the index.
Now, coming to your second question, NPS Tier II is a good product. But the maximum that you can invest in equity through NPS is only 75 per cent. Also, it is still not very clear whether one can take indexation benefit in case of debt or not, if you invest in NPS Tier II. But the low cost structure of NPS will create a significant advantage.