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Dev Ashish  | Answer  |Ask -

MF Expert, Financial Planner - Answered on Aug 24, 2023

Dev Ashish is a fee-only SEBI-registered investment advisor with over 15 years of active experience in the stock market. In 2011, he founded StableInvestor, a platform for personal finance and financial planning.
He provides professional fee-only investment advisory services to small and high networth individuals in order to help them achieve their financial goals.
Ashish's views are regularly published in national business publications. He has an MBA degree from NMIMS, Mumbai and also holds an engineering degree.... more
Gopalkrishna Question by Gopalkrishna on Aug 16, 2023Hindi
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Dear Dev, I am investing in mutual funds as given below, Mirae asset emerging blue chip- 2000 sip,Mirae tax saver-1000sip, DSP tax saver-1000, DSP Mid cap fund-1500sip,NIppon small cap-1500, and 2500sip in safe gold App, Please give your advise am i investing in good option?

Ans: Hi Gopal

A few observations, for the total amount of investment being made monthly, you don't need to invest in so many schemes. 1-2 schemes are enough, of which 1 can be ELSS if you have tax-saving requirements. The other can be a flexicap fund as your existing portfolio seems to be a mix of large, mid and small-cap funds.

Note (Disclaimer) - As a SEBI RIA, I cannot comment on specific schemes/funds that are provided or asked for in the questions in the platform. And the views expressed above should not be considered professional investment advice or advertisement or otherwise. No specific product/service recommendations have been made and the answers here are for general educational purposes only. The readers are requested to take into consideration all the risk factors including their financial condition, suitability to risk-return profile and the like and take professional investment advice before investing.
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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Ramalingam

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Asked by Anonymous - Apr 28, 2024Hindi
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Sir, i have 6 No of Mutual fund 1.SBI small cap 1000 per month 2. SBI focused equity 1000 per month 3. SBI blue chip fund 1000 per month 4. Nippon india small cap 500 per month 5.Quant small cap fund 1000 per month 6. Parag parikh flexi cap 1000 per month Is these MF are good or i need to change any fund. SBI fund are almost 2.6 year old. I have time horizon of 10 to 15 years.Now i am 38 year old.
Ans: It's great that you're investing in mutual funds for your future financial goals! Let's review your current mutual fund portfolio and make some suggestions:

SBI Small Cap, SBI Focused Equity, and SBI Blue Chip Fund:
SBI Funds are reputable and have a track record of performance. However, it's essential to review their performance periodically to ensure they continue to meet your investment objectives.
Nippon India Small Cap and Quant Small Cap Fund:
Small-cap funds can offer high growth potential but also come with higher risk. Ensure you have a long-term investment horizon and the risk tolerance to withstand market volatility.
Parag Parikh Flexi Cap:
Flexi-cap funds provide flexibility to invest across market caps. Parag Parikh Flexi Cap Fund is known for its diversified portfolio and focus on quality stocks. It's a good choice for long-term wealth creation.
Suggestions:

Review Performance: Periodically review the performance of your mutual funds to ensure they align with your investment goals and risk tolerance.
Diversification: Consider diversifying your portfolio further by adding funds from different fund houses or investing in different asset classes like debt or international funds.
Regular Monitoring: Keep an eye on the performance of your funds and make adjustments as needed. If any fund consistently underperforms its benchmark or peers, consider replacing it with a better-performing alternative.
Consult a Financial Advisor: Consider consulting a Certified Financial Planner for personalized advice tailored to your financial goals, risk tolerance, and investment horizon. A professional can help optimize your portfolio and ensure it remains aligned with your objectives.
Overall, your mutual fund portfolio seems well-diversified, but it's essential to monitor its performance regularly and make adjustments as needed to stay on track towards your long-term financial goals. Keep up the good work and continue investing systematically for your future!

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Ramalingam

Ramalingam Kalirajan  |7012 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Sep 22, 2024

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I invest in mutual fund - 1) motilal oswal nasdaq 100 fund of fund 2) quant flexi cap fund 3) nippon india multi cap fund 4) quant small cap fund 5) Axis nifty midcap 50 index fund - 2000 SIP 5) icici prudential equity and debt fund - SIP 3000 is it best mutual fund to invest? please advise I also invent in stocks - ADANIPORTS,BAJAJFINSV, CENTRALBK, Hdfc Bank, IDFC, INFY, IRB, IRFC, JIOFIN, ITC, JKTYRE, NBCC, PNB, Suzlon, RVNL, Texrail, Tatapower is it good shares??
Ans: Your portfolio has a mix of mutual funds and individual stocks. Both investment vehicles have their merits, but it's essential to weigh the benefits of each to achieve your financial goals effectively. Since mutual funds offer diversification, professional management, and easier tracking, I would recommend focusing more on them than individual stocks. Let’s explore this further.

Why Focus on Mutual Funds Over Individual Stocks?
While investing in individual stocks can be exciting and potentially rewarding, it comes with risks. You’re dependent on the performance of a few companies, which can lead to high volatility in your portfolio. On the other hand, mutual funds spread your investment across a wide range of companies, reducing the risk. They also come with the expertise of professional fund managers, who make informed decisions on which companies to invest in, when to enter or exit, and how to optimize returns while minimizing risk.

By prioritizing mutual funds, you gain:

Diversification: Instead of investing in just a handful of companies, your money is spread across many, lowering your overall risk.

Expert management: Professional fund managers, who spend their days analyzing markets, take care of selecting the right companies for you.

Lower emotional stress: Tracking and managing individual stocks requires regular attention and can be stressful. Mutual funds, especially actively managed ones, help you take a more hands-off approach.

Given your mix of stocks and mutual funds, it would be wise to gradually shift more towards mutual fund investments to create a more balanced and low-maintenance portfolio.

Reviewing Your Mutual Fund Portfolio
Now, let's review your current mutual fund investments and identify areas where you can enhance your returns and reduce risk.

1. International Fund Exposure (Motilal Oswal Nasdaq 100 Fund of Fund)
This fund invests in the U.S. Nasdaq index, giving you exposure to international markets, particularly the tech sector.

Analysis: While global exposure is good for diversification, this fund comes with higher volatility and currency risks. The expense ratio is also typically higher for international funds. You could consider a well-diversified international mutual fund that offers active management for better risk-adjusted returns.

Recommendation: Actively managed international funds could offer better performance than passive ones like this, where there is little flexibility to adapt to market changes.

2. Flexi Cap Fund (Quant Flexi Cap Fund)
This fund invests across market capitalizations and sectors, offering flexibility.

Analysis: Flexi cap funds are good because they can adapt to changing market conditions, but the success depends on the fund manager’s ability to make the right calls at the right time. Quant's approach can work in your favor if the market trends are favorable.

Recommendation: Stick with this, but regularly review the fund’s performance to ensure it aligns with your goals.

3. Multi Cap Fund (Nippon India Multi Cap Fund)
Multi-cap funds invest across large-cap, mid-cap, and small-cap stocks, offering diversification across the entire market.

Analysis: Multi-cap funds are excellent for diversification. However, the key is to monitor how well the fund manager balances between the three market caps. Too much exposure to mid or small caps could increase volatility.

Recommendation: This is a solid fund category, and you should continue with it. Ensure that the allocation within the fund remains balanced.

4. Small Cap Fund (Quant Small Cap Fund)
Small-cap funds focus on smaller companies that have high growth potential but come with increased risk and volatility.

Analysis: Small caps can generate high returns, but they are very volatile. Since these companies are smaller, they are more vulnerable to market downturns.

Recommendation: If you have a high-risk tolerance and a long investment horizon, keeping a small portion of your portfolio in small caps is acceptable. However, ensure it's not a significant portion of your investments.

5. Index Fund (Axis Nifty Midcap 50 Index Fund)
Index funds passively track a market index. This one follows the Nifty Midcap 50.

Analysis: Index funds offer lower expense ratios but limited flexibility. Because they mirror the index, they cannot adapt to market downturns or pick high-potential stocks. As the market fluctuates, so will your returns—there’s no room for outperformance.

Recommendation: Actively managed midcap funds tend to outperform passive index funds. By switching to an actively managed fund, you allow the fund manager to choose stocks that can generate better returns.

6. Equity and Debt Fund (ICICI Prudential Equity and Debt Fund)
A balanced fund that provides exposure to both equity and debt instruments.

Analysis: This type of fund is good for reducing overall portfolio risk, offering a balance between the growth potential of equities and the stability of debt. However, in a bull market, equity-heavy funds could deliver better returns.

Recommendation: This fund can be a great component of your portfolio if you're looking for a balance between growth and security. Stick with this, especially if you prefer some stability during volatile times.

Disadvantages of Index Funds
You have invested in an index fund, which tracks the Nifty Midcap 50. While index funds are often lauded for their low fees, they come with inherent drawbacks:

Limited scope for growth: Since these funds merely replicate an index, they miss out on the chance to outperform the market. In bull markets, actively managed funds often generate better returns as fund managers can select the best-performing stocks.

No downside protection: Index funds cannot exit bad stocks. If the broader market is falling, your returns will fall in line with the index.

Better alternatives: Actively managed funds can navigate market volatility better and take advantage of high-growth stocks outside the index.

Considering these limitations, it might be wise to shift away from index funds and focus on actively managed funds. These funds, run by experienced fund managers, offer the potential to outperform benchmarks.

The Pitfalls of Direct Funds
Many investors choose direct plans of mutual funds to save on fees, but there are hidden disadvantages to this approach:

No expert advice: Without the guidance of a Certified Financial Planner (CFP), you might miss out on crucial investment advice. Your investments may not align with your long-term financial goals.

Missed opportunities: A CFP can help you rebalance your portfolio, especially when market conditions change. They ensure you are investing in the right funds at the right time.

Overlooking diversification: Direct investors often lack the broader perspective that a financial planner brings. They may end up over-concentrating their portfolios in specific sectors or asset classes.

For optimal portfolio management, it’s best to invest through a CFP. They ensure that your investment strategy is holistic, well-diversified, and aligned with your financial goals.

Stock Investments: A Secondary Focus
While you have a diversified stock portfolio with investments in companies across sectors, focusing on individual stocks requires constant attention, research, and market analysis. Individual stocks can experience sharp declines or growth based on company-specific issues, market sentiments, and economic changes.

Volatility risk: Stock prices can swing dramatically in short periods. This can affect your portfolio balance and create stress.

Time-consuming: To manage a stock portfolio effectively, you must track each company’s performance, keep up with news, and know when to buy or sell. This can be overwhelming if you lack the time or expertise.

Lack of diversification: While you do have stocks in different sectors, your stock portfolio is limited to a small number of companies. Mutual funds, on the other hand, offer far greater diversification with far less effort.

Shifting Focus to Mutual Funds
Given the advantages of mutual funds over individual stocks, it might be beneficial to gradually reduce your stock holdings and increase your mutual fund investments. Mutual funds offer:

Professional management: Fund managers are constantly working to optimize your returns while managing risk. They have access to research and insights that are often beyond the reach of individual investors.

Diversification: Mutual funds invest in dozens, or even hundreds, of stocks across various sectors. This reduces the impact of poor performance from any one company.

Simplicity: With mutual funds, you don’t need to track each stock individually. The fund manager takes care of it for you, allowing you to focus on your long-term goals without the stress of daily market movements.

Finally
Your current portfolio is diversified but could be improved by focusing more on mutual funds. While individual stocks can offer high returns, they come with higher risks and require constant attention. Shifting your focus towards mutual funds can provide you with greater peace of mind, better diversification, and professional management.

Consider reducing your exposure to individual stocks and increasing your investments in actively managed mutual funds.

Avoid index funds that can limit your growth potential. Actively managed funds can help you take advantage of market opportunities.

Ensure that you continue to invest through a Certified Financial Planner who can guide your decisions, rebalance your portfolio, and align your investments with your goals.

By prioritizing mutual funds and relying on professional management, you will be in a stronger position to achieve your long-term financial goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
Instagram: https://www.instagram.com/holistic_investment_planners/

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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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