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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

Should I start SIP in mid-cap funds? If yes, then in which fund should I invest in order to earn adequate profit?
- Makrand Lele

Systematic investment plan (SIP) is one of the most effective ways to invest in a disciplined manner. Let’s answer your question one by one. Before investing in any investment avenue, you should assess your risk appetite. Assessing your risk appetite often makes your job easy to select investment avenues. Secondly, you should decide your investment horizon. Speaking about mid-cap funds, you should at least have an investment horizon of 7-10 years. If your risk profile falls between moderate to aggressive with an investment horizon of not less than seven years, you can very well consider investing in a mid-cap fund.

Coming to your second question about which fund to invest in and adequate profit, before understanding which fund to invest in, let us first understand adequate profit. The definition of adequate profit is quite subjective and differs from person to person. For some Rs10,000 profit is more than enough and for some even Rs1 lakh profit doesn’t suffice. Therefore, it is more important to decide what your version of adequate profit is. You can very well do it by calculating the amount that you expect at the end of the investment span.

Moreover, your expected amount would help you decide how much amount you need to invest in order to achieve your goal at the end of the set timeframe. Now let’s come down to the final one: which fund to invest in. Typically, we would suggest you to first assess your risk profile to decide.

Having said that, below is the list of the five top performing mid-cap funds which will help you choose the one that suits your risk profile and profit objective. These are PGIM India Mid-Cap Opportunities Fund, Axis Mid-Cap Fund, Baroda Mid-Cap Fund, Edelweiss Mid-Cap Fund and Kotak Emerging Equity Fund.

What is the difference between focused funds and value funds?
- Arvind Pathare

Focused funds are different from value funds in the category sense but a focused fund can work similar to a value fund if the focused fund adopts value style investing. Having said that, let us look at how different they are from each other. Focused funds are one such category of equity mutual funds that invest in limited stocks. Going by the Security and Exchange Board of India (SEBI) guidelines, focused funds can invest in a maximum of only 30 stocks. Other than that, there are no restrictions as such on focused funds. They can invest across market-caps such as large-cap, mid-cap and small-cap.

Moreover, they are also free to choose value, growth or blend style of investing. Usually they do not spread assets over a large number of stocks and they tend to focus only on a few sectors. The focused funds aim to create wealth through investment in limited high-performing stocks. Remember, as they invest in limited stocks, they carry higher concentration risk. This means if in case a few calls of the fund manager go wrong, they can affect the fund returns badly. While investing, there are different styles of investing such as value, growth or blend. So, the fund manager of a value fund adopts a value investing strategy wherein he looks for stocks which are undervalued and are trading below their intrinsic values.

There are many such stocks where the stock price is not the true indicator of their worth. They are either intrinsically more valuable and have a lot of potential to grow or are so overvalued that it doesn’t justify their worth at the current price point. There are various ways in which the intrinsic value of a company is calculated. If the company’s market value is less than its intrinsic value, it is considered to be undervalued and vice versa. Here is a list of some top-performing focused funds and value funds to help you decide on the one that best suits your investment style and profile.

 

 

 

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