MF Query Board

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I have invested in the following mutual fund schemes through SIP for a period of five years:

☛Franklin India Equity Fund
☛HDFC Hybrid Equity Fund
☛ICICI Prudential Balanced Advantage Fund
☛ICICI Prudential Value Discovery Fund
☛SBI Magnum Global Fund
☛UTI Equity Fund.

Request you to kindly advise which of these investments can be retained for a further 5-10 years and which of these could be redeemed now and switched.
- NitinArora

First of all, we need to understand the purpose of your investment. From your query the purpose of investment is not clear. Therefore, we are assuming you have invested strictly for wealth creation. Secondly, we are not aware of your risk appetite. Understanding your risk appetite is crucial as each category of funds and even different funds in each category have varied risk profile. Hence, what kind of risk you can take becomes an important factor before investing. As this information is not available, we are assuming that you are a moderate risktaker. So, all the suggestions would be based on this assumption.

Franklin India Equity Fund: Redeem
✓The performance has deteriorated from the year 2016.
✓Being a multi-cap fund, it can invest across market capitalisation. That said, it is mostly biased towards large-cap with 73 per cent of its asset dedicated towards large-cap stocks.
✓In terms of risk-adjusted returns as measured by Sharpe and Sortino ratios, it is way behind its peers as well as its benchmark.

HDFC Hybrid Equity Fund: Redeem or Hold
✓ Redeem if conservative to moderate risk-taker but hold if you are an aggressive risk-taker.
✓ Not able to contain downside risk.
✓ Well-diversified debt holding.

ICICI Prudential Balanced Advantage Fund: Hold  
✓Well-diversified debt portfolio.
✓High allocation to financials and automobile sector which might be placed better in five years’ timeframe.
✓Better risk-adjusted returns as measured by Sharpe and Sortino ratios.

ICICI Prudential Value Discovery Fund: Hold
✓The worst hit value theme likely to perform in the near future.
✓Better sector allocation.
✓Able to contain downside risk.

SBI Magnum Global Fund: Redeem or Hold
✓Redeem if conservative to moderate risk-taker but hold if you are an aggressive risk-taker.
✓Better risk-adjusted returns as measured by Sharpe and Sortino ratios.
✓High expense ratio.

UTI Equity Fund: Hold
✓45 per cent allocation to mid-cap and small-cap.
✓Better sector allocation.
✓Better risk-adjusted returns as measured by Sharpe and Sortino ratios.

Is this the right time to invest a lumpsum amount in small-cap funds?
- Sujoy Bhattacharya

Though small-cap funds tend to be more rewarding in the long run, they can also destroy your wealth in the short run. Hence, it is better not to invest in lumpsum in smallcap funds as you do not know the direction of the market. Even if you have a temptation to earn significant returns by investing via lumpsum, keep that emotion under control. Although, many a times in our studies we have found that lumpsum investment does better than a systematic investment plan (SIP), in the case of small-cap funds, investing in a staggered manner is recommended. If you have lumpsum to invest, then you can very well park it in a liquid fund and start monthly systematic transfer plan (STP) to small-cap funds.

Let us assume that you have Rs 6 lakhs to invest and you want to invest now. Further, you have also shortlisted the small-cap funds; still it would be better to divide that money and invest every month for six months. That said, by adopting this method you might win some and lose some, but it will make sure that you have peaceful sleep at night. The problem with investing via lumpsum is that if you face a 20 per cent decline immediately after you have invested, you would end up being anxious and pull your money out to never invest again. And this is a human tendency.

That is why choosing the best fund or the best sector or the best stocks or whether the fund is a small-cap or a mid-cap fund doesn’t define the major part of your investment success. Investment success mainly depends on how you act in the worst of times and the best of times. Being humans, our behaviour would be very natural. And we would have emotions of getting fearful or getting greedy at different junctures. Hence, you will have to devise a system to deal with your financial behaviour. Averaging your investments methodically via SIP is the simplest way to do it.