How should one structure their mutual fund portfolio, considering the different types of categories available in equity and debt in case of both downside and upside trend
We believe that investment strategy and asset allocation of an investor should not vary from year to year and be impacted by short-term market movements. Investors should draw out an asset allocation plan based on their risk profile, time horizon, and financial goals, and not on expectations of market movements in the near term.
Investors need to keep in mind that investments need to be considered within an overall financial framework based on their financial goals, risk profile, and time horizon.
Investors need to decide their asset allocation after a discussion with their investment advisors, taking into account their age, liquidity needs, existing portfolio, present and future earnings, risk profile, life goals etc.
The thumb rule for asset allocation is to have the equity allocation at 100 minus current age. Ideally, the portfolio composition should be determined by ones personal situation and financial goals, and not market conditions
History has proven time and again that in fundamentally strong and growing economies, equity markets provide higher risk-adjusted returns over the long term.
Overall, investing through the systematic route would be ideal for investors as it will inculcate discipline and makes market volatility work for them.
From the sectoral/thematic funds, which fund do you think should perform better in the coming years Why
Sector/thematic funds are ideally suited for informed investors seeking growth in a time horizon of 3 to 5 years through investment in shares of well-managed companies with good prospects within a sector/theme. However, investors should look at these funds, as an add-on to enhance their overall return to an already diversified portfolio. These funds are not complete investment solutions.
Investors must remember that sector/thematic funds provide the opportunity to invest in one area of the market. But if that strategy is used as the sole means of achieving higher returns, the investor must be willing to take the risk that accompanies the possible return.
A single sector/theme will never be truly reflective of the entire economy. We have always believed and advocated that only investors who already have a core equity fund portfolio in place should be investing in sector/thematic funds, and they should not be the primary investments. In that sense, sector/theme funds are for those investors who like the risk/return equation of the particular sector/theme (based on their analysis) but do not have the time to construct a portfolio and manage it.
Any investment decision in sector/thematic funds should be arrived at after careful analysis of the financial situation, risk tolerance and timeframe by the investor.
The way equity market declined in January, tell us how should an investor go about investing in large-, mid-, and small-cap Why
We believe that in a market like India, stock picking is more important compared to a top-down approach or taking sector bets. We believe long-term investors are better off adopting a bottom-up approach and invest in companies with good fundamentals across market cap ranges and sectors.
This would depend on the individuals risk profile and return expectations. However, on a standalone basis a fund that invests across market capitalisations has a lower risk profile compared to that focussing on large, mid/small cap companies.
The returns are also likely to be commensurate with the risk. History tells us that mid and small cap companies are likely to be more volatile compared to their large cap counterparts.
Which type of debt fund is likely to perform comparatively better than the other debt funds in a scenario of high interest rate and tight liquidity position
This would depend on the investors risk profile and investment objective. From a macro perspective, we believe that investments in fixed income funds should deliver attractive risk-adjusted returns over a 9-12 month period. With the exception of inflation, all other macro indicators such as credit and economic growth are benign from a fixed income perspective.
Investors concerned about the volatility could look at floating rate funds and also FMPs for predictable returns over longer periods.