I am a 39-year-old salaried individual and am consistently making upper limit contributions to the Tier-1 NPS (aggressive equity), Provident Fund and PPF towards my retirement goals. I also do direct stock market investing (with long-term view) and have investments in index/active funds for certain goals. I have recently shifted to a new company and have received a gratuity payout (about ₹10 lakh). I request your inputs on the manner of deployment of this lumpsum amount in equity mutual funds in the present market conditions keeping in mind a time horizon of 20+ years. I am also comfortable to top-up such investments in future.

Rajveer Meharwade

The bellwether Nifty index touched record highs in early September and is now trading at valuations on par with long-term averages. The midcap index is trading at a premium to the Nifty, indicating the overheating in this space. Small-caps have had their moment under the sun too. Investing a lumpsum at one go in such a scenario is not a wise idea, though you have a long-term horizon of over 20 years. You can follow the asset allocation strategy given below:

Fixed Deposit returns may be close to their peaks and hence, you can consider parking 20 per cent of the lumpsum here. They can be redeployed in equities when markets turn more favourable/ on maturity. Small finance banks and AAA-rated NBFC deposits offer rates superior to most public and private sector banks. Equitas SFB offers 8.5 per cent on 444-day deposits and 8.25 per cent on 888-day deposits, for example. Bajaj Finance offer 8.35 per cent on 44-month deposits.

Another 20 per cent can parked in debt schemes (schemes C and G) under NPS Tier II. These schemes have done better than equivalent debt mutual fund category funds over one-, three-, and five- and 10-year periods. Unlike Tier 1, there aren’t any withdrawal or compulsory annuity restrictions here.

Divide the remaining 60 per cent in few tranches and deploy it in equity funds over the next six months or so, making use of dips in the broader market. Since you have not mentioned what funds you already hold, we are recommending few funds to suit prevailing market conditions /themes with a long runway for growth — ICICI Prudential Balanced Advantage, Kotak Equity Savings, Parag Parikh Flexicap and Invesco India Infrastructure. Review fund performance every few years and make changes, if necessary.

I am holding Canara Robeco Emerging Equities Fund at an average NAV of ₹178 and am continuing my SIP. I could see there is a downgrade of this fund in bl.portfolio Star Track MF Ratings from 4-star to 3-star. May I know if there is any specific reason for the downgrade? Is it worth continuing the SIP or should I redeem and move to Mirae Asset Emerging Bluechip which is 5- star rated in this category?

Priyadharsan 

As you may be aware, risk and return are two key aspects to consider before investing in any financial product. For our ratings, to see where an equity fund stands in terms of returns, we consider the historical performance of funds (regular plan) measured in terms of one-, three- five-year rolling returns over the past seven years. For the risk aspect, we take into account the sortino ratio of the fund. This ratio measures the performance of the scheme during market downturns and hence captures the downside risk. The higher the ratio, the better. When we assign the ratings, we give a 60 per cent weightage to past performance based on rolling returns and a 30 per cent weightage to the sortino ratio. A 10 per cent weight is assigned to the last one year’s return. While on average rolling returns of the last one, three and five years, Canara Robeco Emerging Equities scores better than our 4-star rated funds, it lags behind on sortino ratio and one-year returns. Hence, two factors have played a role bringing down the overall ratings. However, there is no need move to another fund right away. You can continue your SIPs until our next round of half-yearly revision due in January 2024. If the fund’s ratings fall below 3-star, you can consider moving.

Related Topics
comment COMMENT NOW