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New investor seeks advice on 9 mutual funds: Hold or change?

Ramalingam

Ramalingam Kalirajan  |7922 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jan 16, 2025

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
raghav Question by raghav on Jan 11, 2025Hindi
Money

I am currently investing in 9 mutual funds : 1. Quant small cap 1000 2. Nippon small cap 3500 3. Motilal mid cap 2000 4. Parag parikh flexi cap 2500 5. Icici nasdaq 100 1000 6. Quant large and mid cap 2000 7. Hdfc pharma and healthcare fund 2000 8. Icici technology fund 1000. Investing since may 2024 . Please advice if i shud hold or change. returns till now 0%

Ans: It’s great that you have started investing in mutual funds. You have chosen a variety of funds, but your returns are currently at 0%. This could be due to several factors, including market conditions, asset class performance, and time horizon. Let’s evaluate your portfolio and determine whether you should hold or change your investments.

Portfolio Breakdown
You have spread your investments across multiple asset classes: small-cap, mid-cap, flexi-cap, sectoral funds, and international exposure. Here’s a quick look at the funds you have invested in:

Small-Cap Funds: Quant Small Cap and Nippon Small Cap
Mid-Cap Funds: Motilal Mid Cap
Flexi-Cap Fund: Parag Parikh Flexi Cap
Sectoral Funds: HDFC Pharma and Healthcare Fund, ICICI Technology Fund
International Exposure: ICICI Nasdaq 100
Large & Mid-Cap Fund: Quant Large and Mid Cap
This diversified approach is beneficial in balancing risks across various sectors. However, the question arises: is this the most efficient allocation for your goals?

Fund Performance and Timing
Your funds have delivered 0% returns so far. The performance could reflect the current market conditions. Markets, especially equity markets, can be volatile in the short term, and returns take time to materialize. The 0% return does not necessarily indicate a poor investment choice.

Given that you’ve been invested only since May 2024, this is still a relatively short period. Mutual fund returns often need 3-5 years to show significant growth, especially in small-cap and sectoral funds.

Key Observations
Small-Cap Funds:

Small-cap funds tend to be more volatile but have the potential for high returns over time. They can experience significant fluctuations, especially in the short term.
If you have a long-term horizon, holding on to them could be wise. However, ensure your exposure to small-cap funds does not exceed your risk tolerance.
Mid-Cap Funds:

Mid-cap funds have the potential to offer balanced returns by being less volatile than small-cap funds.
These funds usually work well for medium-term investments (5-7 years).
Flexi-Cap Funds:

Flexi-cap funds are diversified and invest across market caps. Parag Parikh Flexi Cap is generally known for strong long-term performance.
Holding this fund makes sense for stability and diversification in your portfolio.
Sectoral Funds:

Sector-specific funds like pharma and technology are more volatile and can offer high returns during industry booms.
However, they are risky and should ideally make up a small portion of your portfolio (not more than 10-15%).
You may want to reassess if these are essential to your portfolio or if diversification into broader funds is better.
International Exposure:

ICICI Nasdaq 100 offers exposure to international markets, particularly the US tech sector.
While international funds have growth potential, they are subject to currency risks and economic cycles outside India. Diversifying internationally can be a good move, but it should be balanced.
Large & Mid-Cap Funds:

These funds strike a balance between growth and stability. They offer exposure to both large-cap and mid-cap stocks, providing both safety and growth potential.
Quant Large and Mid Cap can serve as a stabilizer in your portfolio.
Evaluating Your Current Portfolio
Diversification: Your portfolio is diversified across small-cap, mid-cap, flexi-cap, sector-specific, and international funds. This is generally a good approach to managing risk.
Sectoral Overload: The allocation to sectoral funds (HDFC Pharma and ICICI Technology) could be reduced. These funds can underperform if their respective sectors face a downturn.
Risk Profile: Given your relatively young age (24 years) and the long-term nature of your retirement goal, it’s acceptable to have a higher risk exposure. However, the current allocation might have too much focus on small-cap and sectoral funds, which could be volatile in the short term.
Performance Tracking: Your portfolio’s performance should be reviewed annually. If funds show consistent underperformance, you might need to switch to better-performing funds.
Investment Strategy Moving Forward
Reduce Sectoral Exposure:

Consider reducing investments in sectoral funds like pharma and technology, as they are highly dependent on sector-specific factors and market cycles.
Reallocate this amount to diversified flexi-cap or large-cap funds.
Increase Allocation to Mid and Large-Cap Funds:

Mid-cap and large-cap funds are generally less volatile compared to small-cap funds. These will provide stability to your portfolio.
Flexi-cap funds can also provide exposure to a broader market, including large, mid, and small-cap stocks.
Increase Exposure to Actively Managed Funds:

Actively managed funds, especially in large and mid-cap categories, tend to perform better over the long run due to the active decision-making involved. These funds are more focused on stock selection and can mitigate risks better than passive options.
Review the International Fund Exposure:

ICICI Nasdaq 100 could be beneficial for diversification, but the US market has risks. A better approach might be exposure to emerging markets or other international funds to balance risk.
Regular Investment Review:

Review your portfolio every 6 months or annually to ensure it is aligned with your goals.
Track the performance of each fund. If a fund consistently underperforms, it may be time to exit and switch to a better alternative.
Asset Allocation Recommendation
Equity Funds: 60-70%
Diversify across large-cap, mid-cap, and flexi-cap funds.
Debt Funds: 20-30%
For stability and regular income, consider allocating some portion to debt funds or hybrid funds.
International Funds: 5-10%
Consider reducing exposure to sector-specific international funds and increase exposure to broad-based international funds.
Final Insights
Your portfolio has the potential to perform well over the long term, but there are some areas that could benefit from fine-tuning. The key is to balance between high-risk, high-reward investments (small-cap, sectoral funds) and more stable, diversified funds (mid-cap, large-cap, flexi-cap). Regular reviews and adjustments, along with maintaining discipline in SIPs, will help you achieve your financial goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment
DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.
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Sir I am invested in Axis Long Term Eqty -Rs-225000/, Nippon Small Cap fund(Gr) -Rs 272000/-, Axis Small Cap- Rs98000/-, Tata Small Cap Rs 12500/-, Canara Rebeco Small Cap Rs 30000/-, Canara Reboco emerging Equities Rs-88000/-, Kotak Emerging Equities Rs 88,000/-, Kotak Multicap Rs4000/-, Bandhan Vision Rs 4000/-, ICICI Bluechip Fund Rs1,15,000/-, Miraeassets Emerging fund Rs1,80,000/-, Quant Active Fund Rs 24000/-, Franklin US Eqty Rs8500/-. Please rate my investments in mutual fund. Any changes you would suggest.
Ans: Your mutual fund portfolio appears to be well-diversified across various categories, including large-cap, small-cap, and multicap funds, as well as international equity funds. However, having such a large number of funds may lead to over-diversification and increased complexity in managing your portfolio.

Here are a few suggestions:

Consolidation: Consider consolidating your portfolio by reducing the number of funds to a more manageable level. You can achieve diversification with fewer funds by selecting well-performing funds with different investment styles and objectives.

Review Small Cap Exposure: Small-cap funds can be volatile and may carry higher risk. Ensure that your exposure to small-cap funds aligns with your risk tolerance and investment goals.

Monitor Performance: Regularly monitor the performance of your funds and compare them with their respective benchmarks and peers. Consider replacing underperforming funds with better alternatives.

Rebalance Regularly: Rebalance your portfolio periodically to maintain your desired asset allocation and risk profile. As market conditions change, certain asset classes may outperform others, leading to deviations from your target allocation.

Consider Tax Implications: Keep in mind the tax implications of selling funds, particularly if they have been held for a short duration. Consult with a tax advisor to minimize tax liabilities while making changes to your portfolio.

Overall, while your portfolio appears diversified, it's essential to periodically review and adjust it to ensure alignment with your investment objectives, risk tolerance, and market conditions. Consider seeking advice from a financial advisor to optimize your portfolio based on your specific financial goals and circumstances.

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Point wise answers to your queries as given below:

1. Yes.
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DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Investment in securities market are subject to market risks. Read all the related document carefully before investing. The securities quoted are for illustration only and are not recommendatory. Users are advised to pursue the information provided by the rediffGURU only as a source of information and as a point of reference and to rely on their own judgement when making a decision. RediffGURUS is an intermediary as per India's Information Technology Act.

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