Should I switch my SBI Bluechip fund for higher returns?

Ans: Hello Apurv and thanks for writing to me. ICICI Prudential Bluechip Fund is a good fund.

If you can state your objectives and risk appetite, then I may be able to recommend another fund.

Ans: Your current SIPs seem to be diversified across large-cap, mid-cap, and small-cap funds, which is a good strategy for long-term growth. However, whether to continue with these funds or make changes depends on various factors:

Performance: Check the performance of these funds against their benchmarks and peers. Consistently underperforming funds might be a concern.
Fund Manager: Ensure the fund manager has a good track record and is experienced in managing the type of fund you're investing in.
Expense Ratio: Lower expense ratios can significantly impact your returns over the long term. Ensure you're not paying too much in fees.
Fund Strategy: Understand the investment strategy of the funds. Make sure it aligns with your risk profile and investment goals.
Market Conditions: Market conditions can influence the performance of different types of funds differently. Diversification helps, but sometimes a market shift might warrant a change in strategy.
Given that you've been investing for just a year, it might be premature to judge the funds solely based on performance. However, regular review is essential. If you find that these funds are not performing as expected or if there are changes in your financial goals or risk appetite, consider consulting a financial advisor to help you make informed decisions. Remember, investing is a long-term game, and patience is often rewarded.

Ans: Dear Mr. Sunil Lala,

It's commendable that you've been consistent with your monthly contributions to the Canara Robeco Emerging Equities Growth Fund for nearly seven years. Making informed decisions based on performance advice is crucial, but it's equally important to understand the bigger picture.

Switching to a better-performing fund can indeed be a sound strategy, but it's essential to give investments time to perform and align with market cycles. Short-term performance fluctuations are common, and knee-jerk reactions may not always yield desired outcomes.

Considering your concerns about the returns from the Canara Robeco Blue Chip Fund, it's worth evaluating a few aspects:

Performance Analysis: Compare the historical performance of both funds over various market cycles to gauge their consistency.
Fund Objectives: Understand the investment objectives of both funds. Are they aligned with your risk tolerance and investment goals?
Exit Load and Tax Implications: Be aware of any exit loads or tax implications before making a switch.
If the Blue Chip Fund's performance doesn't align with your expectations, switching back to the previous fund could be an option. However, before making any decisions, consider consulting with a Certified Financial Planner to gain insights tailored to your financial situation.

Remember, investment decisions should be based on thorough research, understanding of fund objectives, and alignment with your financial goals. A well-informed choice will ensure your investments work effectively towards achieving your objectives.

Ans: You have consistently invested in the SBI Blue Chip Fund through a systematic investment plan (SIP) for the past five years. This disciplined approach is commendable and ensures you benefit from rupee-cost averaging. However, you are concerned about its underperformance in recent quarters. Let us evaluate whether switching is the right strategy and how to optimise your investments.

Evaluating SBI Blue Chip Fund
Large-cap funds like SBI Blue Chip Fund invest in established companies with stable returns.

Short-term underperformance is not unusual, as large-cap funds may face temporary sector or stock-specific challenges.

Review the fund’s performance over a five-to-seven-year horizon.

Compare its rolling returns and risk-adjusted returns with peers.

Consider the management strategy and whether there are recent changes in the fund house or team.

Switching Strategy: Key Considerations
Switching to another large-cap fund needs careful evaluation. Here are factors to keep in mind:

Consistency: Assess whether the new fund consistently outperforms over longer timeframes.

Expense Ratio: Opt for funds with a reasonable expense ratio to maximise net returns.

Portfolio Overlap: Ensure minimal portfolio overlap between funds to diversify your holdings.

Exit Load and Taxation: Check for exit load charges and tax implications when redeeming investments.

Investment Horizon: With a 13-year horizon, focus on funds with steady growth potential.

Action Plan for Your SIP
Stopping SIP with SBI Blue Chip Fund
You can stop the Rs. 5,000 SIP in SBI Blue Chip Fund.

Retain your existing investments in the fund for now.

Monitor its performance over the next 1–2 years.

If it improves, you can reconsider restarting your SIP.

Starting SIP with a New Large-Cap Fund
Begin a new Rs. 5,000 SIP in an actively managed large-cap fund.

Choose a fund with consistent long-term returns, strong management, and a diversified portfolio.

Nippon India Large Cap and ICICI Prudential Large Cap Fund are potential options.

Review the fund's portfolio allocation and compare it to SBI Blue Chip.

Why Retain Existing Holdings?
Selling the entire holding could trigger capital gains tax.

Long-term capital gains above Rs. 1.25 lakh are taxed at 12.5%.

Retaining allows your existing corpus to grow and recover if the fund’s performance improves.

Evaluate its performance yearly to make informed decisions.

Balancing the Portfolio
Diversification ensures optimal risk-reward. Here’s how you can balance your portfolio:

Large-Cap Funds: Allocate 40–50% of your portfolio to large-cap funds for stability.

Mid-Cap and Flexi-Cap Funds: Add mid-cap or flexi-cap funds for higher growth potential.

Hybrid Funds: Consider hybrid funds for a balanced approach between equity and debt.

Debt Allocation: Invest 20–30% in debt funds or fixed-income instruments for stability.

Tax Implications
Avoid frequent switches to minimise tax liability.

Redeeming mutual funds too early could reduce compounding benefits.

Use systematic withdrawal plans (SWPs) during retirement for tax-efficient income.

Reviewing Your Investments
Regularly review your portfolio every six months or annually.

Evaluate funds based on performance consistency and market conditions.

Consult a Certified Financial Planner for tailored advice and portfolio optimisation.

Final Insights
Switching SIP from SBI Blue Chip Fund to another large-cap fund can be a strategic move. However, retaining your existing investment allows time for recovery and avoids tax implications. Focus on long-term goals, diversify across asset classes, and periodically monitor your portfolio. With disciplined investments, you are well-positioned for a secure retirement.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment