If a fund has been delivering below-average performance consistently, you may switch to a more consistent one.
It is advisable to invest via SIP which enables investors to average the cost of his investments.
I am worried about the low returns on my equity funds. Should I stop and withdraw all my money even at a loss? —Ketan Bhushan Equities are the most favoured asset class for wealth generation over the long term. The allocation to equities should be in line with your risk appetite. Over 7- and 10-year rolling periods from August 1, 2006 to August 31, 2020, domestic equities (S&P BSE 500 TR INR) have outperformed fixed-income (CCIL All Sovereign TR INR) delivering 11.44% and 10.80% returns respectively on average, compared to 8.39% and 8.41%, respectively by fixed-income.
Even though equity markets in India and across the globe have rebounded sharply from the lows in March 2020, domestic equities are still about 2% down in the year-to-date period. You should evaluate the performance of the funds in your portfolio vis-à-vis that of their respective category peers. If a fund has been delivering below-average performance consistently, you may switch to a more consistent one.
It is advisable to have some exposure to international equities, which offer exposure to diverse global economic growth drivers and a hedge against currency risk. The valuations prevalent at the time of investment play a defining role in the performance of your portfolio. It is advisable to invest via SIP which enables investors to average the cost of his investments.
Since there will be a rejig in multi-cap mutual funds, should I withdraw my money before January next year? —Arun Kumar Market regulator SEBI had mandated multi-cap funds to have minimum 25% exposure each in large-caps, mid-caps and small-caps starting February 2021, resulting in a meaningful change in the risk profile of the fund. It later clarified that instead of re-jigging portfolios, AMCs can merge the fund with a large-cap fund, facilitate a switch for investors to other funds or move the fund to a different category altogether. Currently, fund houses are assessing the situation.
In case of any change in fundamental attributes of the fund, investors are bound to get an exit load free period. Hence, investors can decide upon their future course of action following the decision by the AMC. Remember, any redemptions (including switches and STPs) would attract taxes on any gains.
The writer is director, Investment Advisory, Morningstar Investment Adviser (India). Send your queries to email@example.com