Need Expert Advice?Our Gurus Can Help

Investing in Mutual Funds: Seeking Expert Advice

Ramalingam Kalirajan |10874 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Jul 15, 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 - Jul 15, 2024Hindi

Hi sir...I am planning to investment in several mutual fund which I have selected for long term purposes (as I still learning and have some experience in investment). Could you tell me your view that whether is it good or somewhat ok where investing in thousand amount range with a stepup(from every year to a quarter) and increase the amount in both. Here are the list where I selected: 1) Motilal Oswal Midcap Fund Direct Growth 2)Quant Small Cap Fund Direct Plan Growth 3) JM Value Fund Direct Plan Growth 4) Quant Flexi cap Fund Direct Growth

Ans: Investing in mutual funds is a wise decision. You've shown diligence in selecting funds for the long term. Long-term investments typically yield better returns due to compounding. It's encouraging to see your commitment to learning and gaining experience in investments. Let's dive into your chosen funds and overall strategy, providing a comprehensive view.

Evaluating Your Fund Choices
Motilal Oswal Midcap Fund Direct Growth
Midcap funds can offer higher growth compared to large-cap funds. They invest in medium-sized companies, which have the potential for substantial growth. However, midcap funds are more volatile and risky. It's crucial to have a long investment horizon, which you seem to have. This fund can add significant value to your portfolio if you can withstand short-term fluctuations.

Quant Small Cap Fund Direct Plan Growth
Small cap funds invest in smaller companies, which can grow rapidly. However, they are highly volatile and carry more risk than midcap and large-cap funds. These funds are suitable if you have a high risk tolerance and a long-term perspective. The Quant Small Cap Fund might offer impressive returns, but be prepared for high volatility.

JM Value Fund Direct Plan Growth
Value funds invest in undervalued companies. These companies have strong fundamentals but are trading at lower prices. Value investing requires patience, as it might take time for these stocks to reach their potential. JM Value Fund aims to capitalize on this strategy. It can provide stable returns over time if you are patient and have a long-term view.

Quant Flexi Cap Fund Direct Growth
Flexi cap funds have the flexibility to invest across market capitalizations. They offer diversification benefits, reducing risk. Quant Flexi Cap Fund can adapt to market conditions, potentially providing balanced growth. It's a versatile option in your portfolio, offering stability and growth potential.

The Disadvantages of Direct Plans
While direct plans might seem appealing due to lower expense ratios, they have drawbacks. Direct plans require more active management and deeper knowledge. You need to stay updated on market trends, economic conditions, and fund performance. Without guidance, making the right decisions can be challenging.

Benefits of Regular Plans with CFP Guidance
Regular plans involve a higher expense ratio, but they come with professional guidance. Certified Financial Planners (CFPs) can provide valuable insights, help with fund selection, and ensure your portfolio aligns with your financial goals. Investing through a CFP adds a layer of expertise, enhancing your investment strategy's effectiveness.

The Importance of Professional Guidance
Investing without professional guidance can be daunting. CFPs offer personalized advice, considering your risk tolerance, investment horizon, and financial goals. They help in portfolio diversification, rebalancing, and navigating market volatility. This professional support can be invaluable, especially for long-term success.

Step-Up Investment Strategy
Your plan to start with a smaller amount and gradually increase it is sound. This step-up strategy leverages the power of compounding. Increasing your investment amount periodically can significantly enhance your corpus over time. It's a disciplined approach, ensuring you stay committed to your financial goals.

Annual and Quarterly Step-Up
Increasing your investment annually or quarterly is beneficial. Annual step-ups align with salary increments and bonuses, making it easier to allocate more funds. Quarterly step-ups offer more frequent adjustments, compounding your investments faster. Choose a step-up frequency that suits your financial situation and goals.

Long-Term Investment Perspective
A long-term investment horizon is crucial for mutual funds, especially equity-oriented ones. Markets are inherently volatile in the short term, but they tend to grow over the long term. By staying invested for a longer period, you can ride out market fluctuations and benefit from compounding returns.

Portfolio Diversification
Diversification reduces risk by spreading investments across different asset classes. Your selected funds cover various market capitalizations and investment styles. This diversification can protect your portfolio from market volatility and enhance returns. Ensure you review your portfolio periodically to maintain a balanced allocation.

Monitoring and Rebalancing
Regularly monitoring your portfolio is essential. Track

performance, stay updated on market trends, and make informed decisions. Rebalancing your portfolio periodically ensures it stays aligned with your risk tolerance and financial goals. For instance, if a particular fund outperforms and its allocation increases significantly, rebalancing can help restore the desired allocation.

The Drawbacks of Index Funds
Index funds might seem attractive due to their low cost and broad market exposure. However, they have limitations. Index funds mimic the market, which means they cannot outperform it. During market downturns, index funds suffer equally. Moreover, they lack the flexibility to capitalize on specific opportunities or avoid underperforming sectors.

Benefits of Actively Managed Funds
Actively managed funds, on the other hand, have the potential to outperform the market. Fund managers actively select stocks, aiming to achieve higher returns. They can respond to market changes, leverage opportunities, and mitigate risks. While the expense ratio is higher, the potential for better returns justifies the cost.

Importance of Patience and Discipline
Investing is not a get-rich-quick scheme. It requires patience and discipline. Avoid making impulsive decisions based on short-term market movements. Stick to your investment plan, and stay focused on your long-term goals. Consistent investing, even in small amounts, can lead to substantial wealth creation over time.

Genuine Compliments and Encouragement
You've taken a significant step by planning your investments and seeking advice. Your proactive approach and willingness to learn are commendable. Keep up the good work, and continue expanding your knowledge. Your dedication and discipline will undoubtedly yield positive results in the long run.

It's natural to feel uncertain when investing, especially with market volatility. Understand that every investor experiences ups and downs. By staying informed and seeking professional advice, you're already ahead. It's okay to have concerns; what's important is to stay committed to your financial goals.

Appreciating Your Efforts
Your effort in researching and selecting funds deserves appreciation. Many people overlook the importance of financial planning. By taking control of your investments, you're ensuring a secure financial future. Keep up the excellent work, and continue to prioritize your financial well-being.

Avoiding Annuities as an Investment Option
Annuities often promise guaranteed returns, but they come with high fees and less flexibility. They might not align with your long-term investment goals. Instead, focus on mutual funds and other investment avenues that offer better growth potential and flexibility.

Surrendering LIC, ULIP, and Investment-Cum-Insurance Policies
If you hold LIC, ULIP, or similar policies, consider their performance. These products often have high charges and offer lower returns compared to mutual funds. Surrendering these policies and reinvesting in mutual funds can provide better growth potential. Ensure you evaluate the surrender charges and any potential tax implications before making a decision.

Final Insights
Investing in mutual funds is a powerful strategy for long-term wealth creation. Your chosen funds offer a good mix of growth and stability. While direct plans might seem cost-effective, regular plans with professional guidance can enhance your investment strategy. A step-up approach to increasing your investments is prudent and leverages the power of compounding. Stay patient, disciplined, and focused on your long-term goals. Regularly monitor and rebalance your portfolio to ensure it aligns with your objectives. Keep learning and adapting your strategy as needed.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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.