Mutual Funds

Your Fund Portfolio

Aarati Krishnan | Updated on November 01, 2020

I have been investing in mutual funds through ICICI Direct. But I now wish to invest through direct plans toavoid intermediary charges. Kindly advise if I can make an investment of ₹5,000 per month in the following funds: Mirae Asset Emerging Bluechip, DSP Midcap, Axis Bluechip, Kotak Standard Multicap and ICICI Prudential Focused Bluechip.

Madan

Direct plans can save you a material sum in annual expenses and help improve your long-term returns from mutual funds.

But to reap benefits from direct-investing, you should be quite good at financial planning, asset allocation and fund selection, apart from having the time to regularly review your portfolio to weed out poor performers and acquire better-performing funds.

Your query suggests that you place a lot of emphasis on selecting the right funds for your portfolio. However, a fund selection exercise should be preceded by a mapping of your financial goals and the timelines over which you would like to achieve them, an assessment of your risk profile and decisions on the asset allocation pattern you would like to follow, either for your entire portfolio or for individual goals.

These decisions have a far greater impact on your ultimate returns than fund selection.

Monitoring the achievement of your goals, your allocation and product choices, at least twice a year, is also equally important.

You can try to work out a comprehensive financial plan based on the above parameters by yourself.

If you find yourself either unqualified or unable to spare the time to do this, you can seek the advice of a fee-based registered investment advisor (RIA).

Even in the latter case, you can make your investments through direct plans, saving on the annual expenses. Your fund choices consist of two large-cap equity funds (Axis Bluechip and ICICI Prudential Focused Bluechip), one large- and mid-cap fund (Mirae Asset Emerging Bluechip), one multi-cap fund and one mid-cap fund.

Given that three of the funds you’ve chosen would select their large-cap allocations from a limited universe of the top 100 stocks in the market, it may be desirable to replace a large-cap fund with another multi-cap fund.

We also note that all the funds you’ve selected are ones that have outperformed their category or benchmark in the recent past — the last three or five years. The recent performance has been driven by the funds’ similar quality style of investing.

It may be prudent to have a mix of styles in your portfolio, by adding value or contra funds.

I have invested in HDFC Retirement Savings Fund - Growth Option for my children’s education. I plan to invest for a minimum of five years; I have already invested for three years. Please tell me if I should continue this investment as I am not very convinced about the performance.

Ashish

While there is no harm in using retirement funds to invest towards other long-term goals, in our view, equity-oriented funds are unsuitable for goals that are just five years away. Typically, it takes 6-7 years for the Indian market to complete a full cycle, and having shorter horizons can mean exiting from your funds at the wrong times.

A hybrid fund such as HDFC Balanced Advantage would have been better-suited for a five-year education goal.

Yes, this fund has trailed the broad market index over one and three years, but these are rather short periods over which to evaluate the performance of an equity product.

HDFC Retirement Savings has a lock-in period of five years and you cannot exit before you complete it.

Send your queries to mf@thehindu.co.in

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Published on November 01, 2020
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