Shall I continue or opt out ? Did it just 20 days ago

Ans:

Axis and Kotak schemes can be continued.

Top 2 small cap funds are (4-Star rated)

• Kotak Small Cap Fund
• Axis Small cap fund

Ans: Investing in sector-specific funds, like defence, has distinct challenges. While sectoral funds may appear promising, they carry high risks due to limited diversification. When a single sector underperforms, your entire investment can suffer, which seems to be the case with your current defence investment.

Understanding Sectoral Funds’ Volatility
Sectoral funds, like defence funds, focus on companies within one industry. This narrow focus often makes them prone to market fluctuations. For example, geopolitical changes or policy shifts can directly impact the defence sector’s performance. In contrast, diversified equity funds can balance risk by spreading investments across multiple sectors.

Benefits of Actively Managed Funds Over Sectoral and Index Funds
Actively managed funds offer expert strategies to identify high-potential stocks across sectors. Unlike sectoral funds or index funds, actively managed funds give certified financial planners (CFPs) flexibility to adapt portfolios based on market conditions. This professional oversight can help safeguard your investment during downturns in any single sector.

While index funds merely replicate a market index and may appear low-cost, they lack this dynamic approach. Actively managed funds aim to outperform the index, creating more opportunities for growth.

Evaluating Direct vs. Regular Mutual Funds
If you’ve invested directly in your defence fund, reconsider the benefits of a regular plan through a certified financial planner. Direct funds may seem cost-effective but lack the guidance and professional insights that CFPs provide. Investing through a CFP offers the advantage of ongoing monitoring and adjustments that suit changing financial goals and market dynamics. This professional involvement can play a crucial role in improving your returns and minimizing potential risks.

Taxation of Mutual Funds
Be mindful of the new capital gains tax rules on mutual funds. If you sell your defence fund now, consider the tax implications:

Short-term gains are taxed at 20%.
Long-term gains above Rs 1.25 lakh are taxed at 12.5%.
Possible Steps Forward for Your Investment
Here’s how you could proceed to improve your investment potential:

Consider Exiting the Defence Fund: The fund’s performance is concerning, and it’s sector-focused. Exiting may protect you from further losses.

Reinvest in Diversified Equity Funds: Diversified funds balance risk and offer potential for growth across sectors.

Engage a Certified Financial Planner: Investing with guidance can help tailor a strategy aligned with your long-term goals.

Final Insights
Choosing sectoral funds requires careful planning and a high risk tolerance. With proper diversification and guidance, you can build a robust portfolio that aligns with your financial future.

Best Regards,

K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

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