MF Query Board
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I am a regular reader of DSIJ’s ‘Mutual Funds Unlocked’ section. I have started saving and investing for my child’s education which is five years away from today. The total amount invested is Rs.5,000 per month via SIP in the following funds: Parag Parikh Flexi Cap Fund (Rs.1,500), Mirae Asset Emerging Bluechip Fund (Rs.1,500), Axis Small Cap Fund (Rs.1,000) and Tata Digital India Fund (Rs.1,000). This is to request you to kindly review the funds and suggest changes, if any. - Athu Dhakshna
We assume that you have properly calculated the requirement for your child’s education. As regards to your mutual fund portfolio, these funds are more suitable from a long-term perspective. When we say long-term what we mean is an investment horizon of seven years and above. However, the investment horizon mentioned by you for your child’s education is five years, which according to us is medium-term. Therefore, your mutual fund portfolio should be a good mix of equity and debt. That said, you have not mentioned your risk profile to recommend you any asset allocation. Assuming you are a moderate risk-taker, we would suggest an asset allocation of 40 per cent equity and 60 per cent debt.
After you assess your risk profile you can tweak the asset allocation accordingly. If you are an aggressive investor then have your portfolio tilted more towards equity and if you are a conservative investor, increase your exposure more towards debt. Considering your risk profile to be moderate, in equity as well we would suggest investing in large-cap funds and mid-cap funds and for debt consider investing in short duration funds, banking, PSU debt funds and corporate bond funds. We recommend having exposure to debt funds because presently we are witnessing a bull run. However, when the markets will correct or move southwards, it is debt funds that would cushion your portfolio.
As far as your present allocation is concerned, we suggest you to continue investing in Parag Parikh Flexi Cap Fund and Mirae Asset Emerging Bluechip Fund. However, we would request you to either divert your systematic investment plan (SIP) in Axis Small Cap Fund and Tata Digital India Fund towards your retirement goal or straightaway stop the SIP in these funds. The rationale behind the same is that these funds are more suitable for long-term goals. In fact, Tata Digital India Fund being a sectoral fund requires active management. In case of debt funds, we would recommend you to add SIP of Rs.2,000 for Aditya Birla Sun Life Corporate Bond Fund and Rs.2,500 in Axis Short Term Fund.
Assuming you get 12 per cent returns from equity funds and 8 per cent from debt funds, your total expected portfolio returns work out to around 10 per cent. So, if we assume you invest Rs.7,500 (Rs.3,000 in equity plus Rs.4,500 in debt) per month at an annualised returns of 10 per cent, at the end of five years you would be able to accumulate Rs.5.78 lakhs. Moreover, we would recommend you to move the accumulated amount in equity every year to debt. This will help you book profits in equity and be in a comfortable position. It is not advisable to take unnecessary risk when it concerns your child’s education.
The market is heading down day by day. So, is it the right time to invest in mutual funds? - Paras Jain
We agree with the observation that indeed the market (hereon referred as Nifty 50) is not so cheerful. From October 19, 2021 it has been moving downwards. Moreover, on November 15, 2021 it failed to move above the high made on October 19, 2021. However, it did make a low of 17,216 which is lower than the low made on October 29, 2021. That said, at present its support zone is placed between the levels of 17,216 and 17,453. On the upside, its resistance zone is between the levels of 18,342 and 18,605. Therefore, breaching the abovementioned levels on either side would direct the market’s next move. Moreover, it takes very good support on 100-day exponential moving average (EMA) and 50-day EMA.
Therefore, unless it heads below the 100-day EMA it would be difficult to say if the market is headed towards a big fall. Moreover, a downfall would also be confirmed if it continues to make lower highs and lower lows. Technically speaking, the market is into a correction mode. Coming to your question, as a mutual fund investor you do not need to time the market. In fact, you can simply invest in a Nifty or Sensex index fund via SIP and relax. SIP has the benefit of rupee cost averaging which helps you tide the downside risk in the long run. Does this mean you cannot time the market with mutual funds?
No, that’s not the case. In fact, there are sectoral funds which do require timing the market. Also, one can try timing the market with index funds as well. However, we do not advocate timing the market if you are investing for specific financial goals. Timing the market involves risk which you can take once you have made provisions for your financial needs. Therefore, we always recommend dividing a portfolio into core and satellite. A core portfolio would be aligned with your goals and more probably would adopt strategic asset allocation. When it comes to a satellite portfolio where wealth creation is the main objective, tactical allocation is preferred the most.