Home > Money > Question
Need Expert Advice?Our Gurus Can Help

Should I Stay Invested in Quant Midcap, Flexi cap & Infrastructure MFs or Switch?

Ramalingam

Ramalingam Kalirajan  |7981 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Dec 23, 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
Manish Question by Manish on Dec 23, 2024Hindi
Listen
Money

Should I Stay Invested in Quant Mid cap , Flexi cap & infrastructure MF or Switch?

Ans: Your investment in mid-cap, flexi-cap, and infrastructure funds is commendable. Let us analyse whether staying invested is better or switching to other funds is necessary.

Assessing Mid-Cap Mutual Funds
Risk and Return Profile: Mid-cap funds invest in medium-sized companies. These funds have high growth potential but come with moderate to high risk.

Market Conditions: Mid-caps perform well during economic growth phases. They might underperform in volatile markets.

Performance Check: Compare your mid-cap fund’s returns with the category average over 5- and 7-year periods. Consistent underperformance might indicate a need to switch.

Recommendation: Stay invested if the fund aligns with your risk profile and shows consistent returns.

Evaluating Flexi-Cap Funds
Diversification Advantage: Flexi-cap funds invest across large-cap, mid-cap, and small-cap stocks. This flexibility balances growth and stability.

Fund Manager’s Role: The success of these funds depends heavily on the fund manager’s skill.

Performance Consistency: Check the fund’s track record over multiple market cycles. It should outperform the benchmark consistently.

Recommendation: Continue if the fund provides stability and growth, and aligns with your long-term goals.

Understanding Infrastructure Funds
Sector-Specific Risk: Infrastructure funds focus on a single sector, increasing concentration risk.

Economic Dependency: Their performance is tied to government policies and economic growth.

Volatility: These funds are highly volatile and may not suit conservative investors.

Recommendation: Diversify if you have overexposure to this sector. Stay invested if the sector aligns with your financial goals and risk appetite.

General Guidelines for Mutual Fund Investments
Diversification and Portfolio Balance
Avoid overexposure to one sector or category.
Ensure your portfolio includes large-cap, mid-cap, and sectoral funds for balanced growth.
Fund Performance Review
Review fund performance annually.
Stay with funds that consistently beat their benchmarks.
Tax Implications
Long-term capital gains above Rs. 1.25 lakh are taxed at 12.5%.
Short-term gains are taxed at 20%.
Plan exits strategically to minimise tax impact.

Expense Ratio
Check the expense ratio of your funds. High expense ratios eat into returns.
Benefits of Actively Managed Funds Over Index Funds
Actively managed funds aim to outperform the index.
Index funds only replicate market returns.
Fund managers in active funds adjust strategies based on market trends.
Active funds offer better potential for high returns, justifying their expense ratio.

Regular Plans Over Direct Plans
Regular plans through a Certified Financial Planner provide guidance.
They help you rebalance your portfolio and monitor fund performance.
Direct plans lack professional advice, which may lead to suboptimal decisions.
Investing via a certified planner ensures better wealth management.

Final Insights
Your decision should align with your goals, risk profile, and market trends. Mid-cap and flexi-cap funds offer growth, while infrastructure funds require cautious monitoring.

Evaluate fund performance and diversification before making changes. Consulting a Certified Financial Planner can optimise your investment strategy.

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.
Money

You may like to see similar questions and answers below

Ramalingam

Ramalingam Kalirajan  |7981 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Oct 11, 2024

Money
Hi sir currently i am investing in DSP midcap MF and i am thinking of switching to other midcap MF, what is your opinion?
Ans: Investing in midcap mutual funds has its own charm and challenges. Your decision to switch from one midcap mutual fund to another needs careful consideration. Let's evaluate the various aspects before you take any step.

Three key aspects need to be analysed before switching your fund:

Performance Evaluation

Before switching, it’s essential to review the performance of your current midcap mutual fund over the last 3, 5, and 10 years. Midcap funds, by nature, are volatile and may have fluctuations in short-term performance. However, focus on the long-term performance and consistency.

Look at the fund's performance against its benchmark and peer group. If your current fund has outperformed its peers in the long run, there may not be a need to switch. A short-term dip doesn't necessarily mean the fund is underperforming.

Fund Manager's Expertise

Fund managers play a crucial role in determining the success of actively managed funds. Check the experience and track record of the fund manager who is managing your current midcap fund. If the fund manager has a consistent and reliable track record, it could be better to stick with the fund.

If the current fund has undergone a change in its fund management team, and you feel the new manager lacks the experience or expertise, this could be a valid reason to consider switching.

Expense Ratio and Costs

The expense ratio of the fund is a critical factor. A high expense ratio can erode your returns, especially in the long term. Compare the expense ratios of your current midcap fund and the new fund you are considering. If the new fund offers a lower expense ratio with similar or better performance, it might be a better option for you.

Besides the expense ratio, switching funds may involve exit loads and tax implications. If your fund is under three years of holding, you'll have to pay short-term capital gains tax, which is taxed as per your income tax slab. Ensure the cost of switching does not outweigh the potential benefits.

Actively Managed Funds Vs Index Funds

Since you haven’t mentioned index funds, let me clarify why you should avoid them when looking for midcap investments. Index funds track the market passively and don't have the advantage of a skilled fund manager who can spot opportunities and make necessary changes. Actively managed funds, on the other hand, can offer better returns by responding to market changes. They can outperform index funds during volatility.

Additionally, index funds often don't offer the flexibility needed in midcap investments. Midcaps are volatile, and a skilled fund manager is needed to navigate through market cycles.

Disadvantages of Direct Funds

It’s important to highlight why investing through a Certified Financial Planner (CFP) and choosing regular funds over direct funds can be more beneficial. Direct funds often appear attractive due to their lower expense ratio, but they lack professional advice.

A CFP provides ongoing monitoring, advice, and tailored solutions based on your financial goals. By investing through a Mutual Fund Distributor (MFD) with CFP credentials, you ensure that your investment decisions are backed by expertise, regular reviews, and alignment with your financial plan.

Direct funds can save some costs, but if not monitored properly, you might miss out on critical opportunities to adjust your portfolio during market changes.

Tax Implications of Switching

Switching funds can trigger capital gains tax. When selling equity mutual funds like midcap funds, the new tax regime applies:

Long-term capital gains (LTCG) above Rs 1.25 lakh are taxed at 12.5%.
Short-term capital gains (STCG) are taxed at 20%.
Keep these taxes in mind before making the switch. Ensure the potential tax outgo does not reduce your overall returns.

Risk Profile and Financial Goals

Midcap funds are volatile and suitable for investors with a high-risk appetite. Review your risk tolerance and financial goals before making a switch. If your financial goals have changed, it might be wise to reconsider the category of funds you're investing in. However, if you still have a long-term horizon and can handle short-term fluctuations, sticking to midcap funds makes sense.

But don’t switch just because of short-term underperformance. Midcaps perform well in the long run if you give them time to grow. Ensure your goals align with the midcap category.

Diversification of Portfolio

Before switching to another midcap fund, ensure that your overall portfolio is well-diversified. Investing too much in midcap funds may expose you to high risk. Ensure that you have adequate exposure to other categories like large-cap and multi-cap funds.

A balanced portfolio with diversified assets is crucial for long-term growth and stability.

Exit Strategy and Reinvestment

If you are still convinced about switching, plan a systematic exit strategy. Instead of redeeming your entire investment in one go, you can consider systematic withdrawal plans (SWP) to reduce the tax burden and market impact.

When reinvesting in a new fund, avoid a lump-sum approach. Instead, opt for a systematic transfer plan (STP), which allows you to invest in a new fund in smaller instalments. This can reduce the impact of market volatility and give you better returns over time.

Review Alternative Options

Before you switch, review the alternatives available in the midcap category. Compare different funds based on their risk-adjusted returns, volatility, and consistency. Stick to funds with a good track record and experienced fund managers.

But don’t jump to conclusions by focusing only on short-term gains. Midcap funds require a long-term horizon to bear fruit.

Final Insights

Switching from one midcap fund to another can seem like a wise move when performance dips. However, a more detailed analysis is crucial before making the decision. Here’s what you should remember:

Evaluate the long-term performance of your current fund.
Consider the role of the fund manager and management team stability.
Check the expense ratio, exit load, and taxes involved in switching.
Don't underestimate the benefits of professional guidance through a Certified Financial Planner.
Ensure that your investment aligns with your long-term goals and risk tolerance.
Diversify your portfolio before making any switches.
Taking a well-rounded and informed approach is key to ensuring that your midcap investments continue to grow. Avoid hasty decisions based on short-term fluctuations, and always plan for the long-term benefits.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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

..Read more

Latest Questions
Milind

Milind Vadjikar  |1030 Answers  |Ask -

Insurance, Stocks, MF, PF Expert - Answered on Feb 17, 2025

Listen
Money
Hello sir, I am 33years old and like to have a stable life with a good retirement corpus along with children education. I have 2 sons both are of 1 and 3years old respectively and my wife is a housewife. I am having FD of 16L, 10L in gold, bought a flat paying housing loan EMI of 25K, having term insurance for 1cr and health insurance for 4L. I am making investments in mutual funds SIP of 30k since last 1 year. Hdfc dividend yeild fund 1000 Icici bluechip fund 8000 Quant small cap fund 1000 Canara robecco small cap fund 1000 Uti nifty index fund 5000 Icici balanced advantage fund 5000 Jm flexicap fund 2000 Quant elss fund 5000 Parag pareekh flexicap fund 2000 Lumsum Investments Sbi healthcare fund 20K Quant infrastruture fund 10k Sbi magnum gilt fund 20k Plz advice....am i really doing good with these investments or shall i replan my investments....
Ans: Hello;

Having 12 funds(9 sip+3 lumpsum) in portfolio is not required.

You need to just 4 funds for your sip of 30 K(divided equally):
1. Flexicap fund
2. Large and midcap fund
3. Balanced advantage fund
4. Multi asset allocation fund

You may consider exiting the sectoral, thematic and debt fund owned by you and redeploy it in your regular funds.

This ensures equity(large cap oriented)is predominant asset class in your portfolio but it also has exposure to debt and gold for balance and risk mitigation.

Also keep a target to step up sip amount every year by 7-10% atleast.

This will go towards higher education provision for your kids. (~1.85 Cr in 15 years considering 7% annual top-up and 10% modest returns)

For your retirement planning you may consider NPS and start with a decent amount(~30 K pm) as regular investment since time is on your side(27 years to hit 60 age).[3.45 Cr in 27 years without any step up consideration. 8% returns assumed].

Consider buying home loan insurance and super top-up health cover.

Happy Investing;
X: @mars_invest

...Read more

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.

Close  

You haven't logged in yet. To ask a question, Please Log in below
Login

A verification OTP will be sent to this
Mobile Number / Email

Enter OTP
A 6 digit code has been sent to

Resend OTP in120seconds

Dear User, You have not registered yet. Please register by filling the fields below to get expert answers from our Gurus
Sign up

By signing up, you agree to our
Terms & Conditions and Privacy Policy

Already have an account?

Enter OTP
A 6 digit code has been sent to Mobile

Resend OTP in120seconds

x