I'm investing in 3 sectorial/ thematic funds like psu, infrastructure, defence,and 3 small cap funds and 1 large cap fund and 2 mid caps funds and 1 flexi cap is my portfolio good or any changes required please review
Ans: Your portfolio seems adequately diversified, but there are some considerations to address, especially regarding sectoral/thematic funds. While these funds offer the allure of investing in specific industries or themes, they come with inherent risks:
High Volatility: Sectoral and thematic funds are more susceptible to market volatility and sector-specific risks. Economic, regulatory, or geopolitical factors can significantly impact these sectors, leading to volatile returns.
Cyclical Nature: Sector performance tends to be cyclical, with periods of outperformance followed by underperformance. Timing the market or predicting sector rotations can be challenging, making it difficult to achieve consistent returns.
Lack of Diversification: Investing heavily in a single sector or theme exposes your portfolio to concentration risk. If the chosen sector underperforms, it can significantly impact your overall portfolio returns.
Limited Upside Potential: While sectoral funds may outperform during specific market conditions, their performance can lag during other periods. Over the long term, diversified funds may offer better risk-adjusted returns by spreading investments across multiple sectors.
Given these perils, it's advisable to reconsider your allocation to sectoral/thematic funds and instead focus on diversified active funds. These funds offer broader exposure to various sectors and industries, helping mitigate concentration risk while potentially delivering more consistent returns.
Consider reallocating your investments towards diversified active funds, such as multi-cap or flexi-cap funds. These funds have the flexibility to invest across market caps and sectors based on prevailing market conditions, offering a balanced approach to wealth accumulation.
Additionally, consult with a certified financial planner (CFP) to tailor your investment strategy to your financial goals, risk tolerance, and time horizon. A CFP can provide personalized guidance to optimize your portfolio and navigate market uncertainties effectively.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in