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Should I stop investing in Axis ELSS, Bluechip, and Midcap Funds?

Ramalingam

Ramalingam Kalirajan  |8547 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Sep 10, 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
santosh Question by santosh on May 30, 2024Hindi
Money

Hi Ram, I have been regularly investing (SIP) in Axis ELSS, bluechip and mid cap fund for past 3-4 of years. Considering the returns in Axis funds are relatively low compared to peers, should I stop my SIP in Axis and move to other funds for better returns?

Ans: You've been consistently investing in Axis ELSS, Bluechip, and Midcap funds for the past 3-4 years. While these funds have a good track record, the recent underperformance of Axis funds compared to their peers has understandably raised concerns. Let's assess this situation and provide some guidance for your next steps.

1. Performance Review of Axis Funds
Short-term Underperformance: It is common for even well-managed funds to go through periods of underperformance. The Axis funds may have underperformed compared to peers in recent years, but this alone doesn’t always justify stopping your SIP.

Long-term Focus: The key aspect of mutual fund investing is to focus on the long-term horizon. Look at the 5-year or 7-year performance of the funds instead of just 1- or 2-year periods. This will give you a better understanding of their long-term consistency.

Axis ELSS Fund:
Lock-in Period: Since ELSS funds come with a 3-year lock-in period, any changes should be made with caution. You need to consider the post-lock-in performance before switching.
Axis Bluechip Fund:
Large-cap Funds: Bluechip or large-cap funds generally tend to underperform in bull markets compared to small-cap or mid-cap funds. However, they offer stability during market downturns.
Axis Midcap Fund:
Volatility: Midcap funds are known for volatility. While Axis Midcap may not have delivered as expected in recent years, midcap cycles typically show substantial gains in the long run.
2. Reasons to Stay Invested
SIP Strategy: SIPs are designed to help investors take advantage of market volatility. By continuing with your SIPs, you will benefit from rupee-cost averaging, buying more units when the market is down and fewer when it’s high.

Market Cycles: Markets move in cycles, and different sectors or styles of funds perform better at different times. The underperformance of your Axis funds could be temporary, and exiting now might cause you to miss future growth.

3. Should You Stop SIP in Axis Funds?
While switching funds could be an option, it’s important to evaluate the following factors before deciding:

When to Consider Stopping SIP:
Consistent Underperformance: If the Axis funds have consistently underperformed their category average over a long period (5+ years), you may consider moving to better-performing funds.

Poor Management: If the fund manager has changed, or there have been significant changes in the investment strategy of the fund, underperformance could persist.

When to Continue SIP:
Recovery Potential: If you believe the Axis funds are poised to recover based on market conditions, sticking with your SIPs can help you benefit from a rebound.

Diversification Benefits: If the Axis funds provide solid diversification within your overall portfolio, consider continuing SIPs to maintain balance.

4. Considerations for Switching to Other Funds
If you decide to move your SIPs to other funds, here’s what you should consider:

Consistency in Returns: Look for funds that have delivered consistent returns over different time periods. Don’t just focus on recent top performers, as they may not maintain their performance.

Actively Managed Funds: Switching to actively managed funds can give you an edge. Unlike index or passive funds, active funds offer the flexibility for managers to adjust their portfolios based on market conditions, which can lead to better returns over time.

Professional Guidance: Working with a Certified Financial Planner (CFP) can help you assess which funds align with your goals. The CFP can monitor performance and recommend changes if required, while ensuring that your portfolio remains balanced.

5. Risks of Moving Too Soon
Timing Risk: Exiting a fund during a temporary period of underperformance can result in missing future gains. Timing the market or trying to switch between funds frequently may hurt your returns in the long run.

Transaction Costs: Moving SIPs frequently might incur exit loads or taxes. ELSS funds, for instance, come with a 3-year lock-in, and selling them early will incur penalties.

6. Maintaining a Balanced Portfolio
Before making any decisions, ensure that your portfolio remains well-diversified across different asset classes and sectors. A balanced mix of large-cap, mid-cap, and ELSS funds can provide stability while offering growth potential.

Diversification across AMCs: Consider spreading your investments across different asset management companies (AMCs) to avoid concentration risk with one fund house.

Rebalancing Regularly: Review your portfolio annually or biannually to ensure it aligns with your goals and risk appetite.

Final Insights
While Axis funds may not have performed well in the recent past, it is essential to evaluate your decision based on long-term performance and market trends. It might not be wise to stop SIPs solely based on short-term underperformance. If you do decide to switch, ensure the new funds fit your investment goals and risk profile. A Certified Financial Planner can guide you in making the best choices for your financial future.

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.
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Omkeshwar

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Head, Rank MF - Answered on Nov 06, 2020

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I have SIP in three different large cap funds. Out of this Nippon is not performing. What should I do as I have observed a trend that particular mutual fund generates good return for some time and then it becomes Underperformer? Shall I continuously switch my investment as per the fund performance as it may happen that in future Axis Bluechip could underperform then again I have to switch out my investment to another fund? 1. Nippon india large cap (Investment till now Rs 80000) SIP 2000/month  2. Mirae asset Large Cap (Investment till now Rs 120000) SIP 5000/month  3. Axis Bluechip fund (Investment till now Rs 40000) SIP 3000/month 
Ans: Please continue with Mirae and Axis Large cap funds and may include Uti Equity Fund-growth Plan-growth and / OR Parag Parikh Long Term Equity Fund- Regular Plan Growth

Portfolio Review:

Once the funds and categories are identified and investment is made thereafter it becomes very important to periodically review the portfolio.

The frequency at which investments can be review in 6 months to a years' time depending upon the objective, tenure and the risk profile. 

Few of the parameters that can be used when to review in between are as under.

1) Material change in the category of the fund due to regulatory requirement i.e. at present multi cap funds

2) Major events i.e. corporate tax rate cut that happened last year on 23rd September 2019, few industries / sectors had more benefit, few may have not; similarly, Covid 19 impacts (not panic part)

3) If all remains normal, then look at the portfolio churn ratio; lower ratio means the fund portfolio will change slowly and therefore the review can be once a year; however it the ratio is very high then constant review is required i.e. in 3 months.

4) If there is substantial underperformance vis-a-vis category as well as benchmark for couple of quarter, fund needs review

5) If there are certain realignment required in the set objectives / goals or change in risk profile considering dynamic nature of live.

..Read more

Ramalingam

Ramalingam Kalirajan  |8547 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Apr 04, 2024

Ramalingam

Ramalingam Kalirajan  |8547 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Aug 29, 2024

Asked by Anonymous - Aug 26, 2024Hindi
Money
I am investing in Axis long term else since last 8 years. I have got decent returns over the years but I feel the returns are not good as compared to other funds. Please advise if I can stop the sip in axis else and start in another elss fund or continue the same. Please suggest good elss to start sip.
Ans: Assessing Your Current ELSS Investment
You have been investing in Axis Long Term Equity Fund for the past eight years. First, congratulations on your discipline in sticking to your investment plan. Over this period, you have seen decent returns, but you are concerned about the performance compared to other funds.

This is a valid concern, and it’s important to assess whether your money is working hard enough for you.

Performance Evaluation of Axis Long Term Equity Fund
While Axis Long Term Equity Fund has been a popular choice among investors, recent trends suggest that it might not be performing as well as some other ELSS funds. Market conditions, fund management changes, or shifts in the portfolio can impact returns. It’s crucial to evaluate whether the fund's performance aligns with your expectations and financial goals.

Understanding ELSS and Its Benefits
Equity Linked Savings Schemes (ELSS) are tax-saving mutual funds that invest primarily in equities. They come with a lock-in period of three years, making them a long-term investment. The primary advantage of ELSS is that it offers tax deductions under Section 80C of the Income Tax Act. However, beyond tax benefits, ELSS should provide solid returns over time.

Disadvantages of Index Funds
While some investors consider index funds, it’s essential to recognize that actively managed ELSS funds often outperform index funds. Index funds merely replicate the market, lacking the ability to capitalize on emerging opportunities or avoid underperforming sectors. Active fund managers can make strategic decisions that potentially enhance returns, especially in a dynamic market like India.

Direct Funds vs. Regular Funds
Investing in direct funds might seem attractive due to the lower expense ratio. However, direct funds lack the guidance of a Certified Financial Planner (CFP), which can be crucial for long-term success. Regular funds allow you to benefit from the expertise and advice of a CFP, ensuring your investments align with your goals and risk tolerance.

A CFP can help you choose the right funds, monitor your portfolio, and make adjustments as needed. The small additional cost of regular funds can be well worth the benefits of personalized advice and ongoing support.

Evaluating the Need to Switch Funds
If you feel that Axis Long Term Equity Fund is underperforming, it may be time to consider switching to a different ELSS fund. However, it’s essential to make this decision based on a thorough analysis. Here are a few steps to consider:

Check Consistency: Look at the fund’s performance over different time frames (1 year, 3 years, 5 years). Consistent underperformance across these periods may indicate a need for change.

Compare with Peers: Evaluate how the fund performs compared to other ELSS funds. This comparison should include returns, risk ratios, and fund manager strategies.

Review Fund Management: Changes in the fund management team or strategy can significantly impact performance. If there have been recent changes, it might be worth considering a switch.

Assess Your Goals: Ensure that your financial goals haven’t changed. If your risk tolerance or time horizon has shifted, your fund selection may need to be adjusted accordingly.

Suggested Strategy for Switching ELSS Funds
If you decide to switch from Axis Long Term Equity Fund, here are some strategies to consider:

Diversification: Instead of putting all your money into one ELSS fund, consider splitting it across two or three well-performing funds. This reduces risk and increases the chances of better returns.

Focus on Long-Term Performance: Choose funds that have shown consistent performance over the long term. Avoid chasing short-term gains, as they can be volatile and unpredictable.

Consider Fund House Reputation: Invest in ELSS funds from reputed fund houses with a proven track record of managing equity funds. This adds a layer of security to your investment.

Monitor Regularly: Even after switching, it’s essential to keep an eye on the performance of your new ELSS funds. Regular reviews with your CFP can help ensure that your investments remain on track.

Benefits of Working with a CFP
Partnering with a CFP can provide significant advantages. They can help you choose the best ELSS funds based on your financial goals, risk tolerance, and market conditions. A CFP can also guide you on when to switch funds, how to rebalance your portfolio, and how to optimize your tax savings.

Final Insights
Investing in ELSS is an excellent way to save tax and grow your wealth. While you’ve done well by staying invested in Axis Long Term Equity Fund, it’s wise to re-evaluate if it’s not meeting your expectations. By considering other well-performing ELSS funds and working with a CFP, you can enhance your returns and continue to achieve your financial goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

Ramalingam

Ramalingam Kalirajan  |8547 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Oct 29, 2024

Asked by Anonymous - Oct 29, 2024Hindi
Listen
Money
I have invested in axis small cap, midcap and blue chip for the last 3 years. Seeing its performance, should I exit now?.
Ans: Investing in different categories, such as small cap, mid cap, and blue chip funds, offers diversification across risk levels and growth potential. Each category has unique strengths and responds differently to market cycles. Here’s an analysis to help you decide if you should continue or exit your investments.

Performance and Market Cycles
Equity funds, including small, mid, and blue-chip funds, typically perform differently in various market conditions.

Small cap funds often show high growth potential but can be volatile. Exiting during a temporary downturn may lead to missed long-term gains.

Mid cap funds provide a balance of growth and risk, as they represent companies beyond the initial growth phase but with room to expand.

Blue chip funds, representing large companies, generally offer stability and moderate returns, being less sensitive to market fluctuations. Exiting these funds could reduce the stability of your portfolio.

The Importance of Investment Tenure
Equity investments require a longer time horizon for optimal returns. Three years is relatively short, especially for small and mid cap categories.

Staying invested through market cycles typically allows these funds to realize their full growth potential. Exiting now could interrupt this compounding effect.

Key Factors for Evaluation
Assess the following before making any decisions:

Fund Consistency: Evaluate if each fund’s performance aligns with its historical and category average. Temporary downturns in small and mid cap funds can be normal.

Fund Manager’s Strategy: Assess if the fund manager has maintained a consistent and strategic approach in selecting stocks within the small, mid, and blue-chip spaces. A strong management approach may be a reason to remain invested.

Market Outlook: Look into current market conditions and projected economic trends. Small and mid cap funds often experience volatility based on market sentiment but recover during favorable market conditions.

Disadvantages of Direct Funds
Self-Management Complexity: Direct funds lack the benefit of a Certified Financial Planner’s ongoing guidance, which can be essential in understanding fund performance and adjusting strategies when needed.

Potential Missed Opportunities: With regular funds through a Certified Financial Planner, you gain access to periodic reviews and proactive recommendations. Direct funds leave this burden entirely on the investor.

Advantages of Actively Managed Funds Over Index Funds
If you’re considering index funds, it’s essential to note their limitations. Index funds follow a fixed market index without adapting to changing economic conditions, unlike actively managed funds. Here’s why actively managed funds might be better:

Dynamic Management: Actively managed funds adjust to market trends, whereas index funds cannot, which limits their potential returns in volatile markets.

Risk Management: Certified Financial Planners can strategically allocate assets based on real-time assessments. Index funds, by design, lack this flexibility.

Re-evaluate Based on Investment Goals
If your goals are long-term, continuing your investment in these funds may benefit from the compounding effect.

If your goals are short-term, reassessing your current allocation with a Certified Financial Planner may help adjust for risk management.

Final Insights
Making a decision based on a three-year performance period may not reveal the full potential of your investments, particularly in small and mid cap funds. Long-term wealth creation in equity often involves staying invested through market fluctuations.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

..Read more

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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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