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Should I Change My 13 Mutual Funds for Better Returns?

Ramalingam Kalirajan |6508 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Jul 19, 2024

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more

Question by Chiru on Jul 01, 2024Hindi

Hi, I have 13 funds in my portfolio worth of 28 Lakhs. I have been investigating from last 6 years. Wonder if I need to change my funds for better returns. Thank you.

Ans: Portfolio Overview
Managing 13 funds over 6 years is commendable. A Rs. 28 lakh portfolio shows your commitment. Let’s analyze and evaluate for better returns.

Diversification and Overlap
Diversification reduces risk. However, too many funds can lead to overlap.

Diversification:

Ensures your investments are spread across sectors and asset classes.

Reduces risk associated with a single fund or sector.

Overlap:

Too many funds can lead to similar investments.

This dilutes the benefit of diversification.

Evaluate if your funds are truly diversified or if there is overlap.

Performance Evaluation
Assess the performance of your funds.

Historical Performance:

Check the performance over different market cycles.

Compare with benchmark indices.

Consistency:

Look for funds with consistent performance.

Avoid funds with high volatility.

Fund Manager and Expense Ratio
The fund manager's expertise and the expense ratio impact returns.

Fund Manager:

Evaluate the fund manager’s track record.

Consistency and experience matter.

Expense Ratio:

Lower expense ratios can improve net returns.

High expense ratios can eat into your gains.

Portfolio Rebalancing
Regular rebalancing aligns your portfolio with your goals.

Rebalancing:

Adjust your portfolio periodically.

Maintain the desired asset allocation.

Goals and Time Horizon:

Align your investments with your financial goals.

Consider your time horizon and risk tolerance.

Actively Managed vs. Passive Funds
Actively managed funds aim to outperform benchmarks.

Actively Managed Funds:

Fund managers actively select stocks.

Potential for higher returns.

Disadvantages of Index Funds:

Follow a passive investment strategy.

Limited potential for outperforming the market.

Actively managed funds offer better opportunities.

Professional Guidance
Consult a Certified Financial Planner for tailored advice.

Certified Financial Planner:

Provides personalized investment strategies.

Aligns investments with your goals and risk profile.

Review and Adjust:

Regular reviews are essential.

Adjust the portfolio as per market conditions and personal goals.

Final Insights
Having 13 funds may be excessive. Focus on diversification without overlap. Evaluate the performance, expense ratios, and fund manager’s track record. Regularly rebalance your portfolio. Consider the benefits of actively managed funds over index funds. Seek guidance from a Certified Financial Planner for personalized advice. This comprehensive approach ensures your portfolio aligns with your financial goals and market conditions.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Asked on - Aug 17, 2024 | Answered on Aug 19, 2024

Hi Ramalingam, Thank you for the feedback. 1) I didn't do any investment in last 2 years and I would like to start investing again. My goals are: Investing for my 6 year old son future (for his studies and bank balance etc.,) and for my retirement planning (I am 37 years now). I can't invest 30k monthly. 2) Is there any MF agencies which could guide me in my investing journey to achieve my goals. 2)Below is the list of schemes and their types; the current value is 28 Lakhs. Could you please advise if I need to switch any of these funds. I have Aditya Birla Sun Life Quant Fund- Regular Gro - N/A Axis Mid Cap Fund - Regular Growth - Eq-MidCap Axis Nifty 100 Index Fund - Regular Growth - Eq-Index Axis Nifty 500 Index Fund - Regular Growth - N/A Canara Robeco Focused Equity Fund - Regular G - Eq-Focussed Canara Robeco Mid Cap Fund - Regular Growth - Eq-MidCap Franklin India Focused Equity Fund - Growth - Eq-Focussed Franklin India Focused Equity Fund - Growth - Eq-Focussed Pgim India Midcap Opportunities Fund - - Gro - Eq-MidCap Sbi Contra Fund - - Growth - Eq-Contra Sbi Contra Fund - - Growth - Eq-Contra Sundaram Small Cap Fund - Regular Growth - Eq-SmallCap Tata Digital India Fund Growth - Eq-Tech. Thank you. Regards, Chiru

Ans: Your current portfolio includes a mix of equity funds across different categories, such as focused equity, mid-cap, small-cap, contra, and sectoral funds. Here's a detailed analysis of your existing funds:

Aditya Birla Sun Life Quant Fund - Regular Growth

Type: Equity
Category: Quantitative Fund
Insight: Quantitative funds follow a systematic, data-driven approach to investing. These funds might perform well in certain market conditions but may not consistently outperform actively managed funds. Consider reviewing its performance over the long term and comparing it to actively managed funds in the same category.
Axis Mid Cap Fund - Regular Growth

Type: Equity
Category: Mid Cap
Insight: Mid-cap funds offer higher growth potential but come with higher risk. If this fund has consistently delivered good returns, it can be retained. Ensure that it aligns with your risk tolerance and financial goals.
Axis Nifty 100 Index Fund - Regular Growth

Type: Equity
Category: Index Fund
Insight: Index funds passively track an index and typically have lower costs. However, they lack the potential for outperformance compared to actively managed funds. Consider replacing it with an actively managed fund if you seek higher returns and are willing to take on additional risk.
Axis Nifty 500 Index Fund - Regular Growth

Type: Equity
Category: Index Fund
Insight: Similar to the Nifty 100 Index Fund, this fund offers broad market exposure. Index funds are more suited for those who prefer a hands-off approach. Consider if a more actively managed fund would better suit your needs.
Canara Robeco Focused Equity Fund - Regular Growth

Type: Equity
Category: Focused Equity
Insight: Focused equity funds invest in a concentrated portfolio of 25-30 stocks, offering potential for high returns but with higher risk. This can be a good choice if the fund has a strong track record and fits your investment strategy.
Canara Robeco Mid Cap Fund - Regular Growth

Type: Equity
Category: Mid Cap
Insight: Another mid-cap fund in your portfolio. Having multiple funds in the same category can lead to overlap. Consider whether you need this many mid-cap funds or if consolidating into one or two strong performers would be more efficient.
Franklin India Focused Equity Fund - Growth

Type: Equity
Category: Focused Equity
Insight: Similar to the Canara Robeco Focused Equity Fund, this fund focuses on a limited number of stocks. Evaluate its performance and see if it's worth holding both focused equity funds or if consolidating might be a better option.
PGIM India Midcap Opportunities Fund - Regular Growth

Type: Equity
Category: Mid Cap
Insight: Yet another mid-cap fund. Again, consider whether you need this many funds in the same category or if consolidating would simplify your portfolio and potentially enhance returns.
SBI Contra Fund - Regular Growth

Type: Equity
Category: Contra
Insight: Contra funds invest in undervalued stocks with potential for turnaround. They can be good for diversification, but it's important to assess their performance over time and whether this strategy aligns with your risk profile.
Sundaram Small Cap Fund - Regular Growth

Type: Equity
Category: Small Cap
Insight: Small-cap funds are high-risk, high-reward investments. If you have a long-term horizon and high-risk tolerance, this could be a good choice. However, small-cap funds can be volatile, so make sure this fits within your overall strategy.
Tata Digital India Fund Growth

Type: Equity
Category: Sectoral (Technology)
Insight: Sectoral funds are concentrated in a specific sector and can be highly volatile. While technology is a growth-oriented sector, it can also be cyclical. Consider whether this fund aligns with your long-term goals or if a more diversified approach might be better.
Suggestions for Improvement
Avoid Overlapping Funds

You have multiple funds in the mid-cap and focused equity categories. This overlap can lead to concentration risk. Consider consolidating into one or two high-performing funds in each category to streamline your portfolio.
Reassess Sectoral and Contra Funds

Sectoral funds like Tata Digital India Fund and contra funds like SBI Contra Fund can add risk to your portfolio due to their concentrated nature. Evaluate whether these funds still align with your risk tolerance and goals, or if diversifying into broader categories might be more prudent.
Switch from Direct and Index Funds to Actively Managed Funds

Direct funds like index funds lack the professional guidance and potential for outperformance that actively managed funds provide. Consider switching to actively managed funds that are overseen by experienced fund managers. This could enhance your returns while also aligning your investments with expert advice.
Focus on Diversified Equity Funds

Consider adding more diversified equity funds to your portfolio. These funds spread investments across different sectors and market capitalizations, reducing risk while still offering growth potential.
Consult a Certified Financial Planner

Working with a Certified Financial Planner (CFP) can help you tailor your portfolio to your specific goals and risk tolerance. A CFP can provide ongoing support, rebalancing your portfolio as needed and ensuring your investments align with your long-term objectives.
Regular Portfolio Review

It's important to review your portfolio periodically. This ensures that your investments are still aligned with your goals and market conditions. Regular reviews with a CFP can help you stay on track and make necessary adjustments.
Final Insights
Your current portfolio is diversified across different fund categories, but it also has some overlaps and concentrated risks. Consider consolidating your holdings, switching from direct and sectoral funds to actively managed and diversified equity funds, and consulting a CFP for personalized advice. By making these adjustments, you can optimize your portfolio for better long-term growth and align it more closely with your retirement and financial goals.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in

Asked on - Aug 21, 2024 | Answered on Aug 24, 2024

Thank you. Wonder what would be your inputs on investing for my son future and my retirement planning.

Ans: For your son's future, consider investing in child-focused mutual funds or balanced funds that offer growth with moderate risk. Start early to benefit from compounding. For retirement, diversify into equity mutual funds for long-term growth, and add some debt funds for stability. Review and adjust your portfolio annually to stay aligned with your goals. Prioritize consistent SIPs and ensure you have adequate life and health insurance coverage.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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