Each week I try and answer generic questions from readers. Here is this weeks edition. You can use the form below to ask your question. First a big thank you to all your support and testimonials in support of my nomination to the Indiblogger 2017 award. Each time I feel worthless and depressed, I must remember to go here and cheer up 🙂 Thank you.
Second, with all this talk about reorganising mutual fund schemes, I am not sure it makes sense for me to publish this months PlumbLine list. So will wait for the dust to settle.
Now to the questions. Please do not post fund names and ask my opinion about them. I will ignore such questions.
kalai: I have shortlisted 4 equity funds :- 1 large cap,1 Mid cap, 1 Multi cap ,1 Multicap with international stocks(25%) My query is, can i have different folios(same 4 equity funds) for each of goal. Or Can i choose minimalist portfolio approach like choose 1 or 2 funds from the above list and construct the multiple portfolios for my goals. I am assuming, there is risk involved if i choose one fund instead of all 4 funds for single goal, when the chosen fund is not performing well. Please share your views .
Pattu: The definition of minimalism varies from person to person. You can choose one large cap and one mid cap fund and use it for all your goals in the same folio (two funds from same amc) or large cap from one amc and midcap from another. Or you can 4 funds: two large caps and two midcap, one for each goal. What matters is how comfortable you are with managing the investments and associate it with each goal.
Ramamurthy: What happens to HDFC Balanced Fund and HDFC Prudence Fund? Will both exist under the new categorisation?
Pattu: They cannot co-exist in the same category. We will have to wait and watch.
Bedanara Banerjee: I have decided to invest jointly with my daughter in equity funds.As my retirement will take place within four years, i will get retirement benefits from my employer along with an index-linked pension. My wife also is employed and will retire within nine years. She will also receive lumpsum benefits along with index-linked pension.We want to invest lumpsum along with sip in mf for my daughter’s retirement placing daughter as first holder.After scrutinising the robo excel, we could not find the calculators for lumpsum investments at different points of times because we will get money at different points of time. Note that my daughter works in a PSU bank which will provide only NPS.Please advise
Pattu: The robo advisory template is not a tracker. You will have to update it periodically with current investments.
Ram: Hi, I read in a few previous posts about MF comparison a mention of the CNX Alpha 50 as a benchmark. My questions: 1. Have you started to use the CNX Alpha 50 as a benchmark in the MF comparison tools? 2. If so, how does one get a hold of the index weightage?
Pattu: To quote from the above post:
“Alpha is a measure of out-performance with respect to a risk-free rate and correlation with a given index. The alpha 50 is an index of 50 stocks that has the highest alpha among the top 300 stocks in terms of market cap is selected.
The selection is identical to the NLV50, except that alpha is used instead of standard deviation. However, it is not clear to me what the risk-free rate and index for comparison (beta calculation) are. In any case, the index is diversified enough to be used as a mid-cap index.”
Initially, I did use the NLV50, but somehow I was not comfortable when the calculation method is not clear and stuck to NIfty Next 50. You can get the latest constituents of NLV50 from here
Kunal Lal: What would be a good idea – to balance funds based on the market PE or decide on an allocation and then keep at it whatever be the market direction? In the second option, may be I would re-balance at the start of each year or may be big market movements? Based on this, another question I have is – is it a good idea to decide the SIP amounts and freeze it for a period, may be a year? Or actually keep some buffer in your hand and then suppose the market changes direction over a course of 2 months then put that buffer in equity or debt? But this might probably be too much of an effort in a sideways market?
Pattu: I would recommend simple periodical rebalancing – annual or once in a few years in the initial stages of investing and increase the period of rebalancing as the goal nears, perhaps using PE or important events like elections. I would prefer systematic investing and focus on rebalancing separately.
Ratheesh Narayanan: Hi, I have 5.5 lacs cash in hand. Currently, it is short term FD in SBI and getting 6.5% interest. I want to know, where can I invest to get a better return for the next one year? Thanks in Advance.
Pattu: No big wealth can be made over 1Y. Keep in a FD (of a reliable bank) and sleep peacefully or use an arbitrage fund where there is a risk of loss (small, though). Not suggesting liquid or other debt funds as you will have to pay tax as per slab.
Ashish: Hello, I have been doing SIPs since 2006 and have a considerable size portfolio now. The problem is I ended up having 26 Funds. I now realize the importance of streamlining portfolio to be 4-6 Funds. I have already decided target portfolio that will have only 4-6 funds, but my question is that previous SIPs were accumulated over 10 years and now if I want to redeem from unwanted fund schemes should I again do SIP or should I invest lumpsum in my streamlined portfolio of 4-6 funds? In my mind I think I should be fine with lumpsum investment after redemption as the existing portfolio was built over 10 years of SIP and I should treat lumpsum investment just as a switch in new portfolio of 4-6 funds. With this approach I do not have to wait for long period to re-invest via SIP. The downside is that I may re-invest at a high. However I would think with a horizon of 10 years I would be fine. Let em know your thoughts. Thanks in advance. Ashish
Pattu: “The downside is that I may re-invest at a high.” No. Your portfolio is already at a high! That is, it is already subject to the risk of a market high (assuming it is one). So switch in one shot and be done with it.
GOWTHAM: i have this question about Alternative investment funds?How different are they traditional MFs?How good their Rate of returns are?How to invest in them if its worth a deal?
Pattu: Too early to comment. The risks are largely unknown. The ticket size is quite high for entry too.
palanivel: Below are the fund with a good rolling return outperformance consistency combined with a good downside protection outperformance Selection criteria 3yr, 5yr and 7yr 80% consistency ration. Also selected the downside capture consistency above 50 % Here are the results. Birla Sun Life Frontline Equity Fund HDFC Index Fund – Nifty Plan SBI Bluechip Fund JM Balanced Fund-Growth Kotak Balance HDFC Mid-Cap Opportunities Fund JM Multi Strategy Fund Principal Emerging Bluechip Fund DSP BlackRock Focus 25 Fund Mirae Asset Emerging Bluechip Fund – Regular Plan Motilal Oswal MOSt Shares M50 ETF Fund These fund does not have yield good returns .based on returns for 1 yr,3yr,5yr and 10 yr. JM Balanced Fund Kotak Balance Regular Plan Similarly same case in Large cap. These fund does not have yield good returns EQ-LC BSELargeCap-TRI HDFC Index Fund – Nifty Plan EQ-LC BSELargeCap-TRI Motilal Oswal MOSt Shares M50 ETF Fund These fund does not have yield good returns for past 1 year EQ-LC BSELargeCap-TRI SBI Bluechip Fund EQ-LC BSELargeCap-TRI DSP BlackRock Focus 25 Fund I am happy with this fund in largecap ,midcap and multicap. Birla Sun Life Frontline Equity Fund Mirae Asset Emerging Bluechip Fund Principal Emerging Bluechip Fund HDFC Mid-Cap Opportunities Fund My question is that whether we need to see only the consistent performance in 1 , 3 ,5 , 10 year or follow with a good rolling return outperformance consistency
Pattu: That depends on your definition of consistenly. If you look at 1,3,5,10Y returns you are looking at one data point. Rolling return consistency looks at a lot more. So up to you.
Santhosh: Suppose a fund has high beta and high alpha, wont the fund outperform in a long term SIP investment (say 10 years) which might see one or two market cycles, than a fund having low beta and low alpha ? during the high beta phase, the NAV will drop more and more units will be got which will perform well during a high alpha phase ?
Pattu: “Past performance is not indicative of future returns”. The NAV once declared, becomes history. So does anything that you calculate from it. So do not extrapolate reg “outperformance”.
Amod: Hello sir, There is so much noise in the media (online and otherwise) about the current state of markets, compounded further by differing viewpoints on the available data, that a layperson like me is confused. I have about Rs 30 Lakhs and am wary of even investing in debt funds (let alone equity) ! Are my fears unfounded?
Pattu: Fear the media first. That is a well founded fear! Invest as per the risk requirements of your financial goal.
Ishan sharma: Hello sir I am 29 years of age and I am thinking of purchasing term plan of 1 crore and I want to purchase it from 2 different companies. For that I have selected LIC e term and ICICI e term plan. Any suggestions from Ur side will be helpful…
Pattu: I do not comment on individual products. You will have to choose depending on your comfort level. Please buy asap.
Kalyan: I will begin investing for the first time in mutual funds though I have been a direct equity investor for a long time. Should I wait for the market to come off the peaks to begin mutual funds investing? I am making no fresh buys in equity for a while now.
Pattu: If you want to wait, you should define a peak and define a level at which you will buy/sell. Then recognise that this strategy will reduce risk and may or may not enhance returns. Personally, I invest when I get money regardless of market levels.
Nikunj Gattani: Hi Sir, I want to invest some part of investment in gold. What is the best way to invest in gold. Also, How to evaluate Gold ETFs as there are several Gold ETF plans from different AMCs. Thank you
Pattu: Not much to evaluate gold etfs. JUst choose one with low expenses and reasonable AUM. What matters is more is to distinguish: When to invest in gold and when to buy it
HN: Suppose, some one has been investing in equity for some time and now has a specified (let us say 70:30 equity – debt allocation) advised. Instead of directly investing in debt, why not keep on investing higher in equity and redeem MF that give better result at certain times to fill up your debt bucket through FDs, because you never know how long the NAV/ CAGR for a specified duration will have a positive trend. Sorry if that sounds a childish question.
Pattu: Not a childish question, but if you keep investing more in equity, you will have higher equity exposure (before you shift to debt) and if the market crashes, the loss will be higher and recovery may take longer. There is no real benefit in stopping debt investment.
R SIVA PRASAD: Sir, While selecting/screening a mutual fund, you advise to compare it with benchmarks. But I feel it to compare with Mutual Funds in the same category. As long as my fund is in top in the category why I have to think about benchmark. And if a mutual fund is beating its benchmark, but not top in the category, how can I choose it. Anyway, benchmark is for AMCs to justify their returns. But as a investor I have to see top of the category. Am I right Sir? SIVA PRASAD KHAMMAM
Pattu: Wrote about this here: As long as my fund is a category topper, why should I compare it with a benchmark?
KARTHIK: Considering a case wherein I am investing in a mutual fund for long term and I have a specific goal (daughter’s higher education) and am sure of the duration (18 years), wouldn’t it be prudent to select a fund which is expected to give the maximum return (without worrying about risk/volatility etc) since: (i) I am sure of when the fund is needed and starting 3-4 years before goal target date, I can shift the funds to debt when the markets are performing (thereby nullifying risk/volatility) (ii) Assuming that I am investing an amount of Rs.10,000 as monthly SIP for 18 years, wouldn’t a difference in return of 3-4% (or even 1-2%) turn out to be a huge amount?
Pattu: “wouldn’t it be prudent to select a fund which is expected to give the maximum return (without worrying about risk/volatility etc)”
This is like saying, it will rain today afternoon. I know where exactly the raindrops will fall in the street. So I do not need an umbrella as I can slip past the raindrops without getting wet. I know where exactly to step even before it starts to tain.
Not a good fit, but the question reminds me of this quote:
S.B.Raajesh Kannan: Dear sir, First of all thanks for your free services and very much impressed your article. Here, my question is ” Why we cannot invest in 15 or 20 mutual fund schemes to make returns average ? rather then invest in 5 MF. Since, you said more times that the returns are not standard and it vary year to year. ie., I have selected 5 mutual fund ( without analyzing sectors, only looked returns for past 3 to 5 years ) before 2 years back and doing SIP 2000 Rs. each fund, when I reviewed now, 2 funds gave nearly 25% and 3 funds gave 15% , when I added all 5 funds current value, then I got 19 % average, If i would have selected only one fund of low returns, then I will struck with 15 % , now I got 19% ( I know, you will tell why you have not selected the proper fund), So, now I am following the above , whenever I decided to increase my SIP amount ( selecting 5 funds and distribute on all ) Please advice it is correct or wrong
Pattu: Wrote about this here: Why not invest in multiple mutual funds to “average” out returns?
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