Your Queries (Mutual Funds): Stick to long-term asset allocation plan even if equity holdings are giving good returns

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July 06, 2021 1:30 AM

You can consider re-balancing your asset-allocation back to the target weights in case of any signifi-cant drift due to market movement.

mutual fundsInvestors should stick to their long-term strategic asset-allocation which in turn depends on their risk appetite and not try and time the markets.

I have invested in a few mutual funds through SIPs. In one of my mutual funds, the current fund value is 40% more than I already invested in the fund in the last two years. If I withdraw the profit value only, while continuing my SIPs for the long term, what will happen then? What will be the impact on the fund?
—Rajib Sen
Equity is the most favoured asset class for wealth generation over the long term, with the potential to deliver superior inflation-adjusted returns compared to most asset classes. Lower (cheaper) valuations while entering any asset class reduce the risk of high future capital loss and improve upside potential, and vice-versa.

However, retail investors should ideally stick to recommended long-term asset-allocation which in turn depends on their time horizon and risk appetite, and not try to time the markets. You can consider re-balancing your asset-allocation back to the target weights in case of any significant drift due to market movement.

Ideally, withdrawals should be made to meet any planned / un-planned expenses. Withdrawing any corpus would lower your portfolio value to the extent of the amount withdrawn. Also, you could lose out on any subsequent gains on the withdrawn corpus that would have accrued till the end of your investment horizon.

The withdrawals defeat the purpose of investing which is to grow your investment corpus and accrue the benefits of compounding. Given these are equity funds going by the returns, only the corpus related to units obtained from SIP during the first year would be currently free from any exit-load. Also, you should be mindful of the tax outgo on the gains made.

In a multi-cap fund, will the fund manager change the asset allocation according to the market movements, or do I have to specify the allocation?
—Amit Badana
Multi-cap funds have a mandate to invest at least 25% of the fund’s corpus into each of the large-cap, mid-cap and small-cap segments. Actual allocation would depend on the fund manager’s views and /or conviction levels on the respective market-cap segments at various points in time. Investors do not have a say in the same and hence do not need to specify any allocation.

The writer is director, Investment Advisory, Morningstar Investment Adviser (India). Send your queries to

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