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Ramalingam Kalirajan |6986 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on May 29, 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

Asked by Anonymous - May 26, 2024Hindi

Sir I am investing 25k per month .10k in canara robecco.5k in PGIM flexicap.7.5 K in Nippon India small call.and 2.5K in tata small cap. Pls review my portfolio in tension of long term investment. Pls suggest one mid cap fund with this. Do I need to add another flexicap apart from above.What should be. Please also suggest if I want to stop one fund and switch into another what is process of investing it at one time

Ans: You are currently investing Rs 25,000 per month across four mutual funds: Canara Robeco, PGIM Flexicap, Nippon India Small Cap, and Tata Small Cap. Let's review your portfolio and suggest any necessary adjustments for long-term growth.

Reviewing Your Current Portfolio
Your current investments are as follows:

Canara Robeco (Rs 10,000/month): Canara Robeco is known for its balanced approach, offering stable returns.

PGIM Flexicap (Rs 5,000/month): A flexicap fund provides the flexibility to invest across various market capitalizations.

Nippon India Small Cap (Rs 7,500/month): Small-cap funds have high growth potential but come with higher risks.

Tata Small Cap (Rs 2,500/month): Another small-cap fund, adding more exposure to high-growth but volatile investments.

Analysis of Current Portfolio
Your portfolio is diversified but leans heavily towards small-cap funds, which increases risk. Small-cap funds are volatile and can lead to significant gains or losses. It is essential to balance this with funds that offer stability and moderate growth.

Suggesting a Mid Cap Fund
Adding a mid-cap fund can balance your portfolio. Mid-cap funds offer higher growth potential than large-cap funds but are less risky than small-cap funds. Here are the benefits of adding a mid-cap fund:

Balanced Growth: Mid-cap funds provide a mix of growth and stability.

Risk Mitigation: Diversifies your risk profile, reducing dependency on small-cap performance.

Potential Returns: Mid-cap funds can outperform in certain market conditions, offering substantial returns.

Recommendation for a Mid Cap Fund
Consider investing in a well-managed mid-cap fund. A mid-cap fund will provide a balanced growth approach and diversify your risk. Consult with a Certified Financial Planner (CFP) to choose the best mid-cap fund for your needs.

Considering an Additional Flexicap Fund
You already have PGIM Flexicap. Adding another flexicap fund may not be necessary. Flexicap funds provide the flexibility to invest across various market capitalizations, offering diversification within a single fund. Instead, ensure your current flexicap fund aligns with your goals.

Switching Funds: Process and Considerations
If you want to stop one fund and switch to another, follow these steps:

Step 1: Evaluate Performance
Assess the performance of the fund you wish to stop. Consider factors like past performance, consistency, and management quality.

Step 2: Redeem Units
Initiate the redemption of units from the fund you want to exit. This can be done online or through your mutual fund distributor.

Step 3: Transfer to New Fund
Once redeemed, the funds will be credited to your bank account. You can then invest this amount as a lump sum in the new fund.

Step 4: Systematic Transfer Plan (STP)
Alternatively, use a Systematic Transfer Plan (STP). This allows you to transfer the redeemed amount gradually into the new fund, reducing market timing risks.

Optimizing Your Portfolio
Regular Reviews
Review your portfolio regularly. Monitor the performance and make adjustments as needed. A quarterly review is advisable.

Rebalance Annually
Rebalance your portfolio annually to maintain your desired asset allocation. This ensures your investments remain aligned with your goals and risk tolerance.

Increase SIP Amount
As your income grows, consider increasing your SIP contributions. This will accelerate your wealth accumulation and help achieve your long-term goals faster.

Conclusion
Your current portfolio is diversified but has a heavy tilt towards small-cap funds. Adding a mid-cap fund will balance your risk and growth potential. Another flexicap fund may not be necessary. Ensure regular reviews and rebalancing to stay on track. If switching funds, consider using an STP for a smoother transition. Consulting with a Certified Financial Planner (CFP) will provide tailored advice to optimize your investments.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner,

www.holisticinvestment.in

Asked on - Jun 02, 2024 | Answered on Jun 02, 2024

Thanks sir.Another question If I need to stop any fund should I do this after 1 year to mitigate exit load and short term tax this to be done every time if I invested in certain fund and finding it is not beating it's benchmark for past 6 mins.

Ans: Understanding Fund Performance and Investment Adjustments
Making informed decisions about stopping or switching funds is crucial. If a fund isn't meeting your expectations, it’s important to understand the implications of exit loads and short-term taxes.

Evaluating Fund Performance
Regularly reviewing your fund’s performance is essential. If your investment isn't beating its benchmark for the past six months, it might be concerning. However, short-term underperformance doesn’t always mean the fund is bad.

Mitigating Exit Load and Short-Term Tax
Most funds charge an exit load if you withdraw your investment within a certain period, typically one year. Additionally, short-term capital gains tax applies if you sell your investment within three years for debt funds or one year for equity funds.

Strategy for Exiting Underperforming Funds
If you find a fund underperforming, consider waiting until you’ve held the fund for over a year. This approach helps avoid exit load and reduces tax liability.

The Role of a Certified Financial Planner (CFP)
Instead of managing investments yourself, consult a CFP. They can guide you in selecting the right funds and adjusting your portfolio as needed.

Disadvantages of DIY Investing
DIY investing can be challenging without professional guidance. Selecting funds, timing the market, and managing risks require expertise. A CFP can help you avoid common pitfalls.

Benefits of Professional Management
Investing through a CFP or Mutual Fund Distributor (MFD) ensures you get expert advice. They monitor fund performance, make necessary adjustments, and ensure your portfolio aligns with your goals.

Actively Managed Funds and Performance
Actively managed funds can potentially outperform benchmarks. Professional fund managers make strategic decisions to adapt to market conditions. They aim to achieve better returns compared to passive index funds.

Diversification and Risk Management
Diversification reduces risk by spreading investments across various asset classes. A well-diversified portfolio balances potential returns with manageable risk. Actively managed funds often include a mix of assets, enhancing diversification.

Emotional Discipline and Long-Term Perspective
Investing requires patience and emotional discipline. Avoid making impulsive decisions based on short-term performance. Maintain a long-term perspective and trust your financial plan.

Regular Monitoring and Adjustments
Regularly review your investment portfolio with your CFP. Market conditions and personal circumstances change over time. Your CFP can help adjust your strategy to stay aligned with your financial goals.

Financial Education and Empowerment
Educate yourself about investing principles and strategies. Financial literacy empowers you to make informed decisions. Stay confident in your investment choices with a strong knowledge base.

Conclusion
If you need to stop an underperforming fund, consider doing so after one year to avoid exit load and short-term tax. Consulting a CFP can help you choose the right funds and avoid the pitfalls of DIY investing. Stay disciplined, maintain a long-term perspective, and regularly review your investments for optimal performance.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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