MF Query Board
Readers are requested to send only one query at a time so that more readers get a chance. Have questions relating to any aspect of personal finance. Ask DSIJ at editorial@DSIJ.in and get your queries resolved.
I am looking at investing in Aditya Birla Sun Life Multi-Cap Fund and would like to know more about it. Could you provide some details?
- Amardeep Singh
Aditya Birla Sun Life Multi-Cap Fund is a recently launched fund that follows the new norms of multi-cap category as laid down by the Securities and Exchange Board of India (SEBI). According to these new norms, a multi-cap fund at all times must have minimum 25 per cent of its assets each in large-cap, mid-cap and small-cap stocks. The major thing to notice here is the risk. This implies that at all times these funds will have a collective minimum of 50 per cent of its assets in mid-cap and small-cap stocks. This is what must be taken into account before investing in the fund.
Given that we are unaware of your risk appetite, it would not be possible to comment on whether you should go ahead with investing in this fund or not. Moreover, this fund has just been launched and we need to check how its asset allocation and stock selection look like in a year’s time. However, if you still wish to invest in this fund, we would suggest that you first assess your risk profile. If your risk profile works out to be conservative to moderate then you should avoid investing in multi-cap funds. Instead, consider investing in funds from the recently created flexi-cap category. However, if you are an aggressive investor and looking to invest in a truly diversified equity fund, then you may consider investing in this fund.
I recently booked profits from my equity mutual funds by redeeming `20 lakhs and am planning to re-invest it in debt mutual funds from a capital protection viewpoint. Should I consider investing it via SIP or STP or is it advisable to invest in lump sum?
- Ravishankar Prasad
We would suggest that you invest in lump sum. There is no need to invest via a systematic investment plan (SIP) or systematic transfer plan (STP) since you wish to invest in debt mutual funds for capital protection purpose. Debt mutual funds are not that volatile as compared to equity and therefore investing via SIP or STP makes no sense unless you do not have the lump sum amount at your immediate disposal. SIPs prove to be more beneficial for those asset classes that are very volatile and subject to deep corrections at a certain point in time. The best example of such an asset class is equity. SIP gives you the benefit of rupee cost averaging in the long run by buying more units at low net asset value (NAV) and lesser units at higher NAV.
Therefore, SIP investors are not affected that much by deep correction like lump sum investors. Deeper the correction, more the time it would take to recover your principal investment amount. In fact, one of our studies shows that it might take twice the time to recover than it takes to fall. Therefore, the journey of recovery of your principal investment might be long and painful. As such, for most retail investors it is prudent to invest in volatile asset classes in smaller amounts at different market levels rather than investing all at one go. However, the same is not the case with debt markets. Debt markets are not subject to volatility of higher magnitude and hence there is no need to smoothen out your cost of holding. In case of debt funds, accruals via coupon payments are the bigger part of returns from debt funds. And they rarely get impacted by the market levels.