Should I Invest in Large and Midcaps Now or Park in Liquid Funds?

Ans: Hi Sushanta and thanks for writing to me. Small and Midcap funds are risky but can offer higher returns than large cap equity funds.

If your risk appetite is moderate then you can also consider flexicap funds or balanced advantage fuds.

It is best to consult an advisor who can understand your risk appetite and goals so that they can create a plan for you.

Ans: You are 24 years old and earning a monthly salary of Rs. 75,000. You’ve already accumulated Rs. 14 lakh in mutual funds and have Rs. 4.8 lakh in your savings account.

Your mutual fund portfolio is split as follows:

Large Cap: 50%
Small Cap: 29%
Mid Cap: 19%
Currently, you are investing in small-cap and mid-cap funds through SIPs and lumpsum investments. It’s clear that you are focused on long-term wealth creation.

Understanding Market Timing
Waiting for a market dip before investing might seem logical. However, predicting market movements accurately is nearly impossible. Markets can remain high for extended periods. While waiting for a dip, you may miss out on potential gains.

The Power of Regular Investments
Investing regularly, regardless of market conditions, can be a wise approach. This strategy is known as rupee cost averaging.

Consistency Wins: By investing regularly, you reduce the impact of market volatility. You buy more units when prices are low and fewer when they are high.

Long-Term Focus: Your focus on long-term wealth creation aligns with this strategy. The long-term growth potential of equity markets often outweighs short-term fluctuations.

Deploying Your Savings Account Balance
You have Rs. 4.8 lakh sitting in your savings account. Deploying this amount into the market all at once might feel risky given the current market levels.

Staggered Investment: Instead of waiting for a dip, consider staggering your investment. You can invest a portion of the Rs. 4.8 lakh each month. This way, you’ll enter the market gradually, reducing the risk of investing a large amount at a peak.

Systematic Transfer Plan (STP): Another option is to move your funds through an STP. You can transfer a fixed amount from a liquid fund to an equity fund over several months. This balances the need to stay invested with the caution of market timing.

Portfolio Diversification and Risk Management
Your current portfolio is heavily weighted towards small-cap and mid-cap funds, which are more volatile. While these funds have high growth potential, they also carry higher risk.

Balanced Allocation: Consider maintaining a balanced portfolio. Large-cap funds, with their stable and relatively lower-risk nature, should remain a significant part of your portfolio.

Risk Assessment: Regularly assess your risk tolerance. It’s important to ensure that your portfolio aligns with your long-term goals and risk appetite.

Reviewing Direct Funds vs. Regular Funds
If you are investing directly in mutual funds, you may want to reconsider.

Direct Funds’ Disadvantages: Direct funds often lack professional guidance. You may miss out on crucial market insights and portfolio rebalancing.

Benefits of Regular Funds: Investing through a Certified Financial Planner (CFP) can offer valuable advice. A CFP can help you navigate market complexities and optimize your investment strategy.

The Case Against Index Funds
You mentioned investing in small-cap and mid-cap funds. If you’re considering index funds, be cautious.

Limited Flexibility: Index funds simply track a specific index. They can’t adapt to market conditions, which may limit returns.

Actively Managed Funds: Actively managed funds offer the potential for higher returns. Fund managers can make strategic decisions based on market trends.

Emergency Fund Considerations
Before investing all your savings, ensure you have an adequate emergency fund.

Liquidity Matters: Keep enough liquid funds to cover at least six months of your expenses. This cushion is crucial for unexpected situations.

Emergency Fund Allocation: Consider keeping a portion of your savings in a liquid fund or a fixed deposit. This provides quick access to cash when needed.

Investing More Than Your Salary
You’re currently investing Rs. 85,000 per month, which is more than your monthly salary. This is an impressive commitment to wealth creation. However, it’s essential to maintain a balance.

Sustainable Investing: Ensure that this high level of investment doesn’t strain your finances. It’s important to maintain a healthy balance between saving and spending.

Regular Review: Regularly review your budget and expenses. Make adjustments as necessary to ensure you can sustain your investment plan over the long term.

Final Insights
Your disciplined approach to investing at such a young age is commendable.

Instead of waiting for a market dip, consider staggered investments or an STP to deploy your savings. This reduces the risk of entering the market at a high point.

Maintain a balanced portfolio and ensure your investment strategy aligns with your risk tolerance and long-term goals.

Working with a Certified Financial Planner can provide you with expert guidance and help optimize your investment plan.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: You've mentioned having Rs 50 lakhs to invest after selling a house. You aim to invest with moderate risk for 5-7 years, potentially withdrawing 25% in the next 3 years for a house purchase. It's essential to approach this investment with a clear strategy to meet your needs.

Investment Horizon and Risk Assessment
Investing for 5-7 years allows you to take moderate risks. Given your time frame, a balanced approach in mutual funds can be beneficial.

Allocation Strategy
To align with your moderate risk appetite, here's a suggested allocation strategy:

Large-Cap Funds
Large-cap funds invest in established companies with a proven track record. These funds offer stability and moderate returns. Allocating 40% of your investment here provides a strong foundation.

Mid-Cap Funds
Mid-cap funds invest in companies with growth potential. They carry higher risks than large-cap funds but can offer higher returns. Allocating 30% to mid-cap funds can balance stability and growth.

Small-Cap Funds
Small-cap funds invest in smaller companies with high growth potential but come with higher risks. Allocating 20% to small-cap funds can boost potential returns, balancing with other lower-risk investments.

Debt Funds
Debt funds invest in fixed-income securities. They offer lower risk and steady returns, ideal for short-term needs. Allocating 10% to debt funds ensures liquidity for your potential house purchase in 3 years.

Timing Your Investments
Investing a lump sum amount can be daunting. Market volatility can affect your returns. Consider a Systematic Investment Plan (SIP) or a Systematic Transfer Plan (STP). SIPs allow you to invest regularly, reducing market risk. STPs let you transfer a lump sum from debt funds to equity funds gradually.

Withdrawal Strategy
Given your plan to withdraw 25% in 3 years, align your debt fund investments with this timeline. Debt funds provide liquidity with lower risk, ensuring your funds are accessible when needed.

Monitoring and Rebalancing
Regularly monitor your investments. Market conditions and personal goals can change. Rebalance your portfolio annually to maintain your desired asset allocation.

Advantages of Actively Managed Funds
While index funds may seem attractive due to lower costs, actively managed funds offer several benefits:

Professional Management: Actively managed funds are managed by experts who can adjust the portfolio based on market conditions.

Potential for Higher Returns: Fund managers aim to outperform the market, providing potential for higher returns.

Flexibility: Active funds can adapt to changing market scenarios, reducing risks.

Disadvantages of Direct Funds
Direct funds might save on commission costs, but there are drawbacks:

Lack of Professional Guidance: Direct funds require you to make investment decisions without expert advice.

Time-Consuming: Managing your investments requires time and effort, which may not be feasible for everyone.

Potential Mistakes: Without professional guidance, the risk of making poor investment choices increases.

Benefits of Investing Through a Certified Financial Planner
Investing through a Certified Financial Planner (CFP) offers several benefits:

Personalized Advice: CFPs provide tailored advice based on your financial goals and risk appetite.

Comprehensive Planning: CFPs consider your overall financial situation, including tax implications and future needs.

Ongoing Support: CFPs offer continuous support, helping you navigate market changes and adjust your investments accordingly.


It's commendable that you are planning your investments wisely. Your decision to seek advice demonstrates a proactive approach to financial management. Understanding your goals and aligning your investments accordingly is crucial for achieving financial security.


Investing a significant amount like Rs 50 lakhs is a substantial step towards building your financial future. It's important to appreciate your diligence in planning and seeking the best strategies to meet your needs.

Final Insights
Investing with a moderate risk approach for 5-7 years requires a balanced strategy. Diversifying across large-cap, mid-cap, small-cap, and debt funds can align with your goals. Regularly monitor and rebalance your portfolio to stay on track.

Investing through a Certified Financial Planner provides personalized advice, comprehensive planning, and ongoing support. Actively managed funds, despite higher costs, offer potential for higher returns and flexibility. Avoid direct funds unless you are confident in managing investments independently.

Your proactive approach and thoughtful planning set a solid foundation for achieving your financial goals. With the right strategy and guidance, you can navigate market conditions and make informed decisions.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: The midcap segment can offer higher returns, but it also comes with higher risks. Market conditions, economic trends, and global events can affect midcap stocks. As of now, the market has shown volatility. This makes the timing of your investment crucial.

Midcap funds have potential, but understanding the timing is key.

Lumpsum Investment in Midcap

Investing a lumpsum in midcap funds might seem attractive, especially if you believe the market will perform well. However, midcap funds are sensitive to market fluctuations. If you invest a large sum and the market dips, your portfolio could suffer significant short-term losses.

But if the market performs well, you could see quick gains.

Yet, the risk is higher.

Systematic Transfer Plan (STP)

STP is a strategy where you transfer a fixed amount from a debt fund to an equity fund (like a midcap fund) over time. This approach spreads your investment over several months. It reduces the risk of market timing, allowing you to average out the purchase price of your midcap fund units.

STP also ensures that your money earns some returns while waiting to be transferred from the debt fund. This method balances risk and potential reward.

Comparing Lumpsum and STP

Let’s break down the benefits and drawbacks:

Lumpsum Investment: High potential for returns if the market is bullish. However, high risk if the market falls. Suitable if you are confident about market trends.

STP: Reduces the risk by spreading investments over time. It is more stable and helps in averaging out costs. Suitable in volatile or uncertain markets.

The choice depends on your risk tolerance and market outlook.

Market Outlook and Risk Consideration

Given the current volatility in the market, it may be wise to adopt a more cautious approach. A lumpsum investment carries a higher risk of capital loss, especially if market conditions worsen. On the other hand, STP allows you to benefit from market dips by purchasing more units at a lower price over time.

Midcap funds are more volatile than large-cap funds, so managing risk is crucial.

Understanding Your Investment Horizon

Consider your investment horizon. If you have a long-term horizon (5-10 years), midcap funds can be rewarding. But if your horizon is shorter, the risk is higher. STP might be more suitable in this case, as it reduces immediate exposure to market fluctuations.

Time in the market is more important than timing the market.

Role of Debt Funds in Your Portfolio

Debt funds offer stability and lower risk compared to midcap funds. By parking your lump sum in a debt fund initially, you earn steady returns. This acts as a cushion against market volatility. The money then moves gradually into a midcap fund, balancing risk and reward.

Debt funds should be a part of your portfolio for stability.

Disadvantages of Direct Funds

If you are considering direct funds, remember that they require active management. With direct funds, you don’t get the guidance of a certified financial planner (CFP). This could lead to mistakes, especially in volatile markets. Regular funds, managed through a certified financial planner, ensure that your investments align with your financial goals.

Professional guidance ensures that your investment strategy is sound.

Actively Managed Funds vs. Index Funds

Index funds might appear attractive due to lower costs, but they merely track the market. In volatile markets, actively managed funds are better. They are managed by experts who adjust the portfolio to outperform the market, especially in the midcap space.

Active management can lead to better returns in dynamic markets.

Final Insights

Given the current market conditions, a cautious approach is advisable.

An STP from a debt fund to a midcap fund allows you to manage risks better. It provides a balanced strategy, ensuring that you benefit from market dips and avoid the potential pitfalls of investing a lump sum in a volatile market.

Midcap funds have the potential for higher returns but come with higher risks. Understanding your risk tolerance, investment horizon, and market outlook is essential.

It’s also important to seek professional advice from a certified financial planner (CFP). This ensures that your investment strategy aligns with your financial goals.

Investing is not just about returns; it's about achieving your financial objectives with peace of mind.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in