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New Year's Investment Question: Are My Current Mutual Funds Good?

Ramalingam Kalirajan |7478 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Jan 09, 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

Question by Ashish on Jan 08, 2025Hindi

Sir, At the outset, I would like to wish you a very happy and prosperous New Year 2025. My question to you is that, I have 2 running SIPs currently, one in DSP India T.I.G.E.R. Fund - Direct Plan (Rs. 1,000/- per month) and another one in Nippon India Small Cap Fund (Rs. 1,500/- per month) , is these are good mutual funds in a long run or I have to switch to another mutual fund instead of these two or have to replace any one of these two from another mutual fund? Looking forward to receiving your valuable financial advice. Many thanks in advance. Please advise. Ashish

Ans: Your consistent SIP investments reflect financial discipline. Both your current funds belong to equity mutual funds, offering potential long-term wealth creation. However, analysing their suitability for your goals and risk profile is important.

Analysing Long-Term Growth Potential
Small-cap funds, while rewarding, come with high volatility. Staying invested for 7–10 years is crucial to mitigate risks and realise growth potential.

Funds focusing on specific sectors or themes may perform inconsistently, depending on market cycles. Their returns could be cyclical rather than consistent.

Diversification and Risk Management
Relying heavily on small-cap and sector-specific funds increases concentration risk. Diversifying across categories like large-cap, mid-cap, and multi-cap ensures balanced exposure.

Equity investments work well for long-term goals like retirement or wealth accumulation. For medium-term goals, consider hybrid or balanced funds.

Benefits of Actively Managed Funds
Actively managed funds are guided by expert fund managers. They adapt portfolios based on market conditions to maximise returns.

Direct plans may save costs but demand time and expertise for constant monitoring. Investing via regular plans through a Certified Financial Planner (CFP) ensures guided financial decisions.

Tax Implications of Equity Funds
Equity fund investments held for over one year qualify as long-term. Gains above Rs. 1.25 lakh are taxed at 12.5%.

Understanding these rules helps in better exit strategies and tax-efficient financial planning.

Suggested Approach for Portfolio Optimisation
Retain investments in equity funds only if aligned with your risk tolerance and goals.

Add a balanced mix of large-cap and flexi-cap funds for stability and growth.

Consider stopping or reducing SIPs in sector-focused funds if diversification is insufficient.

Reinvest into diversified equity funds through systematic transfer plans (STPs).

Avoid frequent fund switches. Stay invested to benefit from compounding and market cycles.

Final Insights
Your SIPs reflect your intent to secure financial independence. A diversified, goal-based approach will maximise your returns while minimising risks. Consulting a CFP will ensure professional insights into fund performance and alignment with your goals. Stay patient, invest systematically, and prioritise long-term growth.

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.