Effective Investment Analysis is one of the prime motto’s of Investica. As a Complete Mutual Fund App, we will talk about the indispensable feature of understanding one’s portfolio in a glance – The Mutual Fund Portfolio Tracker.
So what is the Feature about?
This feature provides an in-depth analysis of how your portfolio stands right this moment. It will give you the latest data available.
How it works?
If you pull your existing investment over to Investica (with the change of Broker form) or have started investing with Investica, you will be able to access the Portfolio from the shortcut at the top in the Dashboard Screen or from the Menu option.
Once in you will be able to see your Absolute Gain / Loss with the key details of the Invested Amount, current value and percentage gain.
Below is the dynamic Graph-based Mutual Fund Portfolio Tracker. Interactive which tracks every small change. See your portfolio performance vs the Sensex for the options ranging from 1,3, 6 months, 1, 3 and 5 years. Below is the screenshot,
Further down, the Module is divided into:-
Highlights – succinctly show you the important details like Best Scheme Performer, % Company exposure, Diversity and Portfolio Rating in colourful Card Formats.
Performance – shows you the performance of the schemes involved in your portfolio with Absolute Returns and %
Portfolio Analysis – This section offers a complete breakdown of your schemes primarily divided into Equity and Debt exposure. The colourful pie-chart is interactive, tapping the divisions will show % exposure and list of schemes can be viewed from the dropdowns below.
Allocation can be viewed as Sector, Company or Market Caps.
Sector-wise allocations are divided into BFSI, IT consulting & software, Auto & Auto Ancillary, oil & gas and other such.
Now the penultimate option – Holdings
Inside this option, you can view all the schemes individually in your portfolio. Tapping on the scheme you will see the following options:
Details – Shows the scheme Details like NAV and Consumer details like unit purchased and amount invested.
Add – If you want to Add an additional amount to your existing investment. You can use this options and choose from the SIP or LUMPSUM option.
Redeem – If you would like to withdraw your invested amount from a particular scheme.
Switch – If you would like to swap the existing scheme with another one. The other scheme selected must be from the same AMC.
STP – Systematic Transfer Plan. If you would like to Transfer funds from one scheme to another within the same Fund House. Say you’d like to transfer an amount of Rs. 1,00,000 in 10 instalments from a Liquid Fund to a Large Cap fund. It works like a SIP transfer between funds.
SWP – Systematic Withdrawal Plan. This option can be used to withdraw a certain amount of funds from a scheme to your bank account. You can set the frequency of the withdrawal to weekly, Monthly or Quarterly basis. Fill detail, select the SWP date and start.
This is the comprehensive explanation of how a Mutual Fund Portfolio Tracker works and how it can be useful to the investor.
An investor, we recently interacted with had a big portfolio consisting of all the possible products available in Indian markets. LIC endowment plans, ULIPs, Mutual Funds, PMS, Structured Products, AIF were some products from his portfolio.
When we calculated CAGR of his portfolio, it turned out to be a mere 8%.
With all such complicated products in the portfolio, the returns could not even beat the Nifty returns. When we communicated this to Investor, he was dumbfounded.
So why do investors create such portfolios?
One reason for this is – The investments done are completely directionless. There is no goal or investment objective towards which these investments are done. And hence, these investments solve no purpose.
There are many investors who simply look at past returns of a fund and invest. When they do not get those returns, they take out the money and end up blaming advisors, the mutual fund industry or really anyone they can blame.
These can be changed if investments are approached systematically. Helping you with 6 Personal finance essentials which will ensure you never invest wrongly!
First and Foremost is Insurance Planning:
The important message which we want you to remember is “Do not Mix Insurance and Investment”. There are many investors who have traditionally preferred LIC Endowment plans, but if we actually look at returns of such policies they have been in the range of 4-6%. Hence, the same amount can be put in better yielding instruments.
For life insurance, one should ideally opt for a Term plan which is a good way to get a cover at a cheaper rate. A 30-year-old male can get a term cover of 1 Crore till his age of 60 at a premium of around 8,500 – 9,500 per annum.
Once you get the life insurance sorted, the next step is to get Mediclaim. Every individual in the family must have a medical insurance to take care of all the expenses during the case of medical emergency. Considering the current medical expenses, every individual must have a medical cover of at least 5 Lakhs.
Second important factor is Tax Planning:
Efficient tax planning is very important to reduce the Tax outgo. Most of the endowment plans are sold with 80C tax benefit. There are other products like ELSS funds which have lesser lock in (3 Years) and potential to give better returns. Apart from section 80C, additional tax benefit of 50,000 can also be availed using NPS under section 80CCD.
Tax saving investments can also be mapped to goals based on time horizon. For example, investment in NPS can be mapped to retirement goal. We will address tax planning in detail in a separate blog.
The most overlooked planning aspect is expense planning. We always want to maintain and improve our lifestyle but it should not happen at the expense of future goals. A way to deal with this can be to sit and note down all the expenses we make on daily basis and then cutting down wherever we can. Under ideal circumstances, your expenses should not exceed 40% of your total income.
Has this ever happened to you, that whenever we get an increment, the increased salary gets spent so fast that we ultimately end up with the same thought of not being able to save enough? To avoid getting trapped in this pattern, one has to consciously take a step to save at least half of increased salary every year.
If you have read our blog on Investment Framework , you will know exact approach you should take towards goal planning. Below is the snapshot of the same:
The important factor to consider in goal planning is the effect of inflation. Allow us to demonstrate this for you. Below is the trend of inflation from 2013 to 2019. Although CPI inflation is around 4%, the actual inflation which affects us on daily basis is around 8%. That means, Value of Rs.100 – 5 years back is now Rs. 68.
Hence, including inflation in goal planning is extremely important.
For retirement planning, the approach taken by most investors is taking a round figure of 1 Crore or 3 Crore or 5 Crore. But sufficiency of this amount is never checked. Ideally, the way to approach the retirement planning should be:
In India, people usually don’t like to talk about unpleasant things like death. But in case of such unfortunate instances, the family should be looked after without having to face too much hassle in claiming the investment and insurance money.
Although these things may seem less important now, they can prove to be extremely painful for the legal heirs if not in order.
We will address this in detail separately in another blog with intricacies of Estate Planning.
Is this too overwhelming?
You can take one step at a time with a given sequence and that will be a key to your financial freedom.
On June 4th, 2019, Dewan Housing Finance Limited was supposed to pay interest on NCD it had issued.
DHFL defaulted on its payment obligation and the impact of it was seen on Mutual Fund NAVs. So, how concerned should we be about this?
Allow us to give you some numbers.
On June 5th, 2019, CARE ratings downgraded DHFL Debt worth 1 Lakh Crore to default. Yes, you read that right! 1 Lakh Crore! This includes all Non-Convertible Debentures and Fixed deposit program of DHFL.
In addition to that, ICRA and CRISIL downgraded DHFL’s Commercial Paper rating to default which was worth 850 Crore!
(For easier understanding, Commercial Papers are short term instruments usually used by Liquid, Ultra Short term, Money Market and Low duration funds.)
We mentioned that Mutual Funds NAV took a hit because of this default. Total Mutual Fund industry exposure to DHFL debt papers is 6,486 crores as on 30th April 2019. (The portfolio data for the month of May is yet to be released)
Below are the top 10 funds and their NAV drop in one day:-
The perception of debt funds being safe is clearly broken in these cases.
How this fall in NAV has occurred?
Post the event of default, mutual funds have to mark down their NAV by 75% as per the rules of SEBI. And since the credit rating was officially downgraded to default by credit rating agencies, mutual funds wrote off entire exposure of DHFL papers.
Even after the credit rating downgrade, DHFL has said that they will honor their interest obligation in next 7 days. If it happens, then NAVs will go up again. If not, then the fall in NAV will be there until the amount is recovered.
What should you do now, if your fund has seen such fall in NAV?
If you have seen the fall in NAV in the mutual fund you hold, the damage is already done. If you do not need the money, then you should hold on to the investment. If DHFL makes interest payment in next 7 days, then your investment will go up and you can exit the fund. If DHFL does not make the payment, then the NAV will remain at the current levels and will go up whenever the fund receives payment.
Hence, in either case, hold on to the investment depending on your time horizon.
But was this avoidable?
The first time, the issue in DHFL flared up was during September 2018, when there was a liquidity crunch in the debt market because of IL&FS default. And after that, it kept getting worse.
However, you could have avoided exposure in this fund and we will tell you how.
Below are the credit ratings given to DHFL by three big credit rating agencies viz. ICRA, CRISIL, and CARE: –
It is clear that the rating downgrade has been gradual and not overnight. Anyone tracking the credit rating over a period of time could have taken an action on a fund with exposure to DHFL before actual credit rating downgrade to Default.
But isn’t it a job of the mutual fund manager?
Well, Yes. Mutual Fund managers are supposed to do this analysis. But some fund managers, have been taking higher risk in order to deliver higher returns. Hence, we believe that there has to be a two-way check on the debt mutual fund portfolios. If you are a DIY investor and can find time to do this analysis on your own then you should.
However, It is very difficult for an investor to go in depth and analyze these factors.
For this very reason, we recommend investor to work with a financial advisor, who is capable enough to guide you through such turbulent waters.
PM Narendra Modi returns for a Historic second term, how will your portfolio be affected?
30th May 2019 will remain a historic day in India’s history when Prime Minister Narendra Modi – led government embarked on the next 5 years of Reforms. In 2014, when Mr. Narendra Modi first became Prime minister, Sensex was at 23,905, which grew up to 39,714. This translates to a CAGR of 12.14% including dividends.
NDA 1 is done and dusted
It’s time to look forward to the next 5 years. For starters, Modi government will have to focus on improving macroeconomic indicators.
“But what does this mean for your investments? How can you direct your portfolio to make the most of the next 5 years?”
BJP’s manifesto gives an insight into what the next 5 years will look like.
The two major commitments which the Modi Government will work are:
Doubling Farmer’s income by 2022
Housing for all.
This will increase the disposable income in rural areas. It will act as a boost to the FMCG sector which saw a lackluster quarter because of reduced demand. Financial companies will continue to grow because of increased rural income.
Improving rural infrastructure is high priority for next 5 years and hence Agri – Allied sectors like commercial vehicles i.e. tractors, seeds, and fertilizers, will be in focus for the next 5 years.
Infra development will require huge investment. Modi Government plans to invest a whopping 100 Lakh crore for Rural Infrastructure by 2024. With this investment, the aim is also to reduce cost of capital. This will increase private spending in infrastructure, which in-turn benefits other sectors like Banking & Finance, Construction and Metals.
This manifesto is an extension of work done under Modi government for last 5 years.
Let’s have a look at performance some of the thematic funds over this period. Three major themes which were in focus are Banking & Financial, Consumption and Infrastructure. We looked at three funds from each theme based sector with the highest AUM.
3 Years CAGR
5 Years CAGR
Aditya Birla Sun Life Banking and Financial Services Fund
Banking & Financial
ICICI Prudential Banking and Financial Services Fund
Banking & Financial
Reliance Banking Fund
Banking & Financial
Aditya Birla Sun Life India GenNext Fund
Tata India Consumer Fund
Sundaram Rural and Consumption Fund
L&T Infrastructure Fund
Reliance Power & Infra Fund
UTI Infrastructure Fund
For, next 5 years, we believe these themes will be in focus, Based on our analysis of the new manifesto, these can outperform to create alpha in your portfolio.
One thing which is important to note is that thematic funds also have inherent risk because of concentration in one particular sector. From the entire portfolio, exposure to Thematic/sectoral fund should not be more than 20-25%.
If you would like to increase the exposure, it will depend on your ability to analyze and understand the market cycle, if not then take help of the investment advisor to build and manage your portfolio.
Step-By-Step Manual for Investica’s New Goal Planning Feature
“A goal properly set is halfway reached” – Zig Ziglar
Legendary Salesman, Author and motivational speaker, American Zig Ziglar has precisely described the importance of goal planning. Financial Goal Planning isn’t very different either.
Our interaction with investors highlighted the need for having a goal planning tool to assist investing.
“The key reason for developing the goal planning feature is that investors find it difficult to hold on to an investment during volatile periods if they don’t know why they are investing.”
Importance of setting Financial Goals
If investments are mapped to some goal then wouldn’t it be easier to continue during difficult times? Because the belief is there right?
The time period is clearly defined and hence it acts as a motivation to hold on to investments until its logical end.
With this, allow us to take you through the Goal Planning module to help you understand how to use it to your benefit.
You can access the goals with the Dashboard or Goals tab beside Menu option.
Once you click on either of the two, you will land in the Goal planning feature where various predefined goals are listed.
The predefined goals were selected based on the preferred choices of Indian Investors. The broad categories are:
Each of these categories has multiple options from which you can select the one suitable to you. Apart from the predefined goals, you can also create your own goal if the predefined goals do not include the objective you wish to invest for.
Once you select any goal of your wish, let’s say you wish to acquire a corpus of 3 Crores for your retirement, you can choose a goal “Retirement Corpus – 3 Crores”. Now you have three decisions to make:
In how many years you want to achieve this goal
Whether you wish to adjust the goal amount to inflation (ideally for long term goals, inflation should be included)
Your Personality Type or Risk profile; you can either choose Safe, Moderate or Aggressive.
And it’s done! You will see the SIP on a monthly basis. Just go ahead and click on Continue.
Now you will the best recommended funds based on the three inputs given, these recommendations will change even if you change one of the inputs hence its extremely dynamic. Select the SIP date as per your preference and click on continue.
You can now pay the first SIP installment or choose the Pay Later option. And your SIP will get registered for the period you have selected to achieve the goal.
In these 5 steps, you can get all of your Financial Goals planned as well as executed.
Not only can you plan the goals with this feature but you can also track the goals on a real time basis.
An individual goal tracker for each goal is available in portfolio option from Dashboard. This will help you to keep track of all the goals and to make sure the goals are on course to completion.
With this Goal Planning feature, we aim to help every investor who wishes to invest in mutual funds.
Lastly the philosophy behind this feature can be simply put in words of Warren Buffet:
“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
Hence, take steps to plant seeds of your future today!
2 min read
Why Investica’s new feature is an industry-first algorithm backed accurate Financial Planner. It’s all things good.
When Ranbir Kapoor lip-syncs to “Kal pe Sawaal Hai, Jeena Filhaal Hai” in Ye Jawani Hai Dewaani, every one of us envied him for his carefree approach to life. Post that, for few days the only dream millennials had was to backpack and explore the unknown and unseen.
That dream though fading now, awakens when we comes across beautiful Instagram and Facebook photos of our friends or colleagues enjoying international Vacations.
Hate to burst this bubble but have you given a thought of the reality behind this dreamy lifestyle?
How many of these people actually saved for their trip? Are these Vacations being funded some type of Loan? Can these individuals consumed by ‘Wanderlust’; confidently say that they are doing their bit to secure their future?
What Surveys reveal?
Many surveys were conducted to study the saving habits of Millennials and their preferences.
Across the world, the results are shockingly similar, showcasing that millennials love to spend on High-End Gadgets, International Vacation, frequent trips to Restaurants, Clubs, etc., but they refrain from saving a small portion of the amount spent on these lifestyle expenses.
While we are all in favor of increasing the quality of lifestyle, we believe that it is equally or rather more important to secure your future in the world full of uncertainty. With this, we also understand that the usual mindset is you can either save for the future or can live in the present to enjoy the short-lived youth.
What if you could do both?
With one simple solution and that is to invest money. The only thing needed is a bit of pre-planning than spontaneous decisions.
But the important question is how to plan financial goals and where to start?
Don’t Worry! Investica has got you covered from financial planning for the goal to Investing for the goal; everything can be done with just few clicks with the New Goal Planning feature.
Setting financial goals
Visit Paris and the iconic Eiffel Tower? Or a MacBook Air? Or the all new Mercedes C – Class? How about all of these?
You can now define when you want to achieve these goals and instead of going through EMI Route, take SIP route to stay liability free and stress-free.
But what prompted us to launch this new Financial Goal Planner feature?
Regular interactions with our investors helped us understand, that we usually know what is good for us, but we don’t act on it as it needs extra effort. It’s like going to the gym, we know it’s good for our health, but we also need to get out of our comfort zone to make it a habit.
The same logic applies to saving, Investment and achieving financial goals too. It can only be perfected with habit and the right approach or behaviour.
At Investica, we strongly believe that Investor behavior is the key to creating or destroying wealth. With a habit to save for every big expense and staying on course during the period of investment can make a significant impact on your journey of wealth creation.
Every small step taken towards Financial Goal planning is a step taken towards a better and secure future.
So, explore our brand new feature of Goal Planning and start investing right away!
With Assets under management of 3.75 Lakh crores, Liquid funds are one of the largest mutual fund categories in Indian Mutual Fund Industry.
How corporates use Liquid funds?
Many corporates prefer liquid funds to park their treasury money since the primary objective of investing this amount is Capital Protection.
Although liquid funds are often used by corporates, many retail investors are still too comfortable with a traditional savings account or FDs to look for better yielding substitutes. And with debt funds facing heat in recent times due to the IL&FS defaults and similar such issues, retail investors have valid reservations when it comes to debt funds.
But Investica believes that informed decision making is the most important step towards a successful investment journey towards great liquid fund returns. And today we will try to lay down some facts related to liquid funds which we believe will help you in deciding whether liquid funds are suitable for you.
What are liquid Funds?
According to SEBI’s definition of liquid funds, these funds can only invest in Debt and Money Market securities with maturity up to 91 days. And this very definition makes liquid funds ideal to park money for short term or to create an emergency fund or as a substitute for the savings account.
But which are these securities with maturity up to 91 days? Most of the holdings in liquid funds are bifurcated in three types of securities:
These securities are a way for institutions to raise money from the debt market for their short term requirement. These securities pay interest on the investment and can be traded in the secondary market. Every Commercial Paper and Certificate of the deposit has a credit rating assigned to it by various credit rating agencies like Crisil, ICRA, etc. The rating scale for such securities is:
Treasury bills are issued by RBI and hence have Sovereign rating which means there is no possibility of default. Most of the liquid funds only invest in A1+ Rating since such securities are extremely liquid in the secondary market giving fund managers flexibility to sell the securities if need be.
Now we know where liquid funds invest the money. Let’s look at some other quantitative aspects of top funds based in the AUM:
Better returns than Savings A/C:
As can be seen from the above table, most of the liquid funds have given returns in the range of 7-7.50% on an annualized basis. That is incremental 3-3.5% return on the savings bank account interest. Most of the times, we keep some amount in the savings bank account as a provision for an emergency. But Most of the savings bank account gives an interest rate of 4%, the liquid fund has the potential to give better returns.
Ease of Accessibility without any cost:
The amount from liquid funds can be accessed in 1 day. That means if you redeem funds today, the amount will get credited to your account tomorrow.
Apart from this, Liquid funds have no exit load which makes it even more cost efficient option to invest.
Tax Efficient over Long Term:
Since the liquid fund is a part of a debt fund family, the taxation of any gain from these funds will be as follows:
As we create an emergency fund with the help of a liquid fund, the holding period can be longer since the money will stay in the fund until there any need for money. With indexation benefit over the long term, the effective tax liability reduces significantly.
Ideal for the Goal of Capital Protection:
When we have a goal of capital protection, we cannot be return greedy. Because as the well-known concept of capital markets go, the higher return is a factor of higher risk. Since liquid funds are particularly designed for investor’s short term requirement, they are very well aligned to the investment objective of Capital Protection.
But What about the Risks?
With so much happening around debt funds, there is a natural question of risks involved in liquid funds. Since these are short term investments, there is no interest rate risk associated with these funds. But if the fund manager invests in riskier securities, then fund gets exposed to credit risk. But as we mentioned before, only short term debt securities with a higher rating are liquid in the secondary market. Hence most of the liquid funds only invest in A1+ rated securities. One can look at the portfolio of a fund to check the credit rating of underlying securities to make sure that the portfolio quality is good.
With this, you are now ready to explore the world of liquid funds!
In India, With Increasing financial awareness, the need for better management of money has also gone up.
Many millennials want to plan and manage their money, but the most common confusion is not knowing where to start. Nowadays, when we find it difficult to plan for next year, how are we supposed to plan our entire life? With uncertainty clouding our day to day life, financial planning can be an overwhelming task but it is equally important.
At Investica, we understand this difficulty and to make it easier, here are top 5 Personal Finance Essentials or simply, Best Personal Finance Tips to get your financial plan started.
50/20/30 Rule for Personal Finance:
US Senator Elizabeth Warren introduced the concept of 50/20/30 rule as a part of the minimalist budget.
It essentially means that out of your net take-home income, 50% you should allocate towards the essential expenses like Utility bills, EMIs, Grocery bills etc.
The next 30% should go towards your lifestyle expenses like Entertainment, Shopping for fancy clothes or gadgets etc.
Now, 20% which remains is your Savings. But only savings is not enough. Those savings should transition to investments, only then can you achieve your goals.
The most common question here is, is 20% savings enough?
Maybe Yes, Maybe No. Your ideal savings rate is a factor of multiple things. Your goals, the time period in which you wish to achieve these goals is very important in determining your savings rate.
The 50/20/30 rule can be a good starting point to get you in the game.
Keep Insurance and Investment different:
We all know someone in our family who has taken too many LIC policies in hopes of it securing their retirement. Although it might seem a good move; in hindsight if one actually calculates the returns on such policies, the result will be disappointing. There are very few such products which can even beat inflation.
Hence, it is important to keep insurance and investment different. From a personal finance strategy perspective; two insurance covers which every individual must have are:
Term Cover: This low-cost life insurance cover can provide substantial life coverage as per your requirement at a very reasonable price. This term cover will also help you save tax under section 80C.
Health Cover: A good health cover can help you to deal with any health scares for the entire life. Hence it is advisable to take health coverage as early as possible. Mediclaim can help you save tax under section 80D.
Be Emergency Ready:
You never know when a difficult situation will present itself. If it demands financial outgo from your end, then it will impact your entire personal finance planning. Being ready to deal with all the contingencies can help you take a breather. Hence to be emergency ready, you should have at least 6-9 months’ income in a liquid fund which will be your emergency fund.
When everything is working fine, you might feel that your money is sitting idle and could earn more. But as we said earlier, being ready for the worst case scenario will lead to a stress-free life.
Liquidity should always be the most important factor while selecting an Investment Vehicle:
At Investica, we are strong advocates of liquidity friendly investments. One of the reasons for this is to have control of our own investments. There are many complicated investment products available in the market which has lock-in periods built in. These lock in products do not provide any flexibility to the investor.
As we encourage long term investing among our investors, we believe that investors should be empowered and should have control over their investments.
However, this rule is an exception to tax saving investments since all the tax saving investments will have some lock-in period as a mandate.
Lesser Portfolio Actions lead to higher portfolio Value:
This is the rule every successful investor lives by. When we invest in equity markets, it is bound to go through volatile periods. But if every small bout of volatility scares you off and leads to you taking portfolio action then you need to take help of a financial advisor.
Most of the best performing funds also give negative returns during falling markets. A bear market phase may go on for as long as one or two years. As an Investor, you should season yourself to view these volatile phases as an opportunity and stick to your financial plan.
This approach will help you to fulfill your financial plan.
With these 5 steps, we have just started accompanying you on this journey of Financial Planning / Personal Money Management. With many new exciting changes coming to Investica, we plan to stay on this journey to help you achieve your dreams.
Till then, start using these personal finance hacks and start with your financial planning!
This doesn’t happen often, not with one of the largest most successful funds anyway.
What’s the change?
Mirae Asset Equity India Fund is one of the largest multi-cap funds in Indian Mutual Fund industry with AUM of approximately 11,000 Crores. It announced a change in categorization from Multi-Cap to Large Cap w.e.f 1st May 2019.
This change is despite the fact that it is one of the most consistent performing funds since its launch in April 2008.
As the fund established consistency in performance, it became the investor’s top choice for investment. Many investors invested in this fund because of its multi-cap mandate and ability to invest across market capitalization.
With a change of category to Large-cap, what should investors do? Will the fund be able to continue the over performance as compared to category and benchmark? Is the fund now suitable for your long term goals?
We will answer many such questions in this blog.
Let’s look at some fund metrics first.
As of March 2019, Mirae Asset India Equity was managing assets worth 11,000 crores. It has seen phenomenal growth in the last 3 year’s data. Here’s a chart,
This increase in AUM is proof of the fund’s consistent performance. Next we looked at annual performance for the last 10 years to check over performance with respect to the benchmark. And here’s what we found:
Historical returns as compared to the benchmark of S&P BSE 200 TRI (TRI is Total Return Index which means that the index returns also have dividends included in them)
Apart from historical returns, we also looked at point to point returns for the last 10 years:
Every year consistently without exception, the fund has managed to outperform the benchmark.
Is this because the fund was Multi-cap with exposure to large, mid and small cap stocks? the return was higher because of appreciation of mid and small cap stocks?
To answer this, we again looked at the large-cap exposure of the fund for the last 3 years. And here’s the data simplified for you:
Since January 2016, Mirae Asset India Equity Fund has had more than 60% of it’s in the portfolio in Large Caps.
And hence the performance of the fund is mostly driven by large-cap stocks in the portfolio. These are just some of the quantitative aspects of the fund’s past performance and portfolio.
As we always say that Equity is a long term product, even though the Mirae Asset India Equity changes its category from Multi cap to Large Cap, it is still suitable to your long term goals. With a multi-cap mandate, the fund chose to invest predominantly in large cap stocks and managed to over perform the benchmark with a wide margin. The fund management team has the expertise and capabilities to create alpha with large cap stocks.
Hence for the long term, there is no need to take any action on this fund. You may keep the fund under observation and keep track of performance. Looking at the track record of Mirae Asset India Equity Fund and also of the AMC, this change is well thought out should not be a cause of concern.
So, now your portfolio will have space for multi cap funds, diversify your portfolio with addition of multicaps.
Mutual Fund Selection needs a bit of finesse, here’s our guide to help you choose MF’s accurately
With direct investments getting popular amongst retail investors, most of the DIY (Do it Yourself) investors are churning their portfolio very frequently because of the volatility in fund performance. One of the reasons for this churning is flawed fund selection. At Investica, we spend substantial time in studying investor behaviour and finding a solution to common behaviour issues investors may face.
From this research, we came up with the top 3 mistakes investors usually do and steps in choosing the right Mutual Fund Scheme:
1. Factoring Past Performance Only:
Mutual funds usually have a disclaimer written in fine print “Past performance is not an indicator of future performance”
But most of the investors do not take this disclaimer seriously. Extraordinary short term returns often act as a temptation (Mutual Fund Selection Mistake) to invest but if your investment objective is not in alignment with fund selection then it may lead to disappointment. Read more about investment framework here.
Historical returns are an important factor for fund selection but it cannot be the only factor.
Apart from the returns, one should look at Macro factors like a goal for which you are investing, investment horizon, risk appetite, asset allocation and micro factors like risk metrics, consistency in performance, fund manager performance and fund house processes. With this data, a fund should be selected. If this due diligence is done, you will not be unhappy with your investments. Remember, your investments should help you sleep peacefully and not take away your good night’s sleep.
2. Having Unrealistic Expectations:
We have interacted with many investors who have extraordinary and hence unrealistic return expectations from mutual funds. At Investica, we always tell our investors that Mutual fund is not a magical product (Mutual Fund Investment Mistake) which can give you better returns than every other investment option. If you are investing in mutual funds, patience and consistency are very important to get the desired returns.
Hence, before selecting a fund, it is advisable to get the return expectations in alignment.
The ideal way to do this would be to have a conservative return expectation so that over the long term, a combination of bear and bull market will translate the expected return in reality.
Again, investing as per your risk profile and in alignment with your financial plan can help in making an informed decision.
3. Selecting Too Many Funds:
Many new investors tend to select too many funds while they are investing. Now, what could possibly be wrong with having too many funds in the portfolio?
Mutual Fund Selection Mistakes:-
Yes, you read that right. There is such a thing called over diversification. Let’s take an example of equity funds. After SEBI’s re-categorisation, funds have a clear guideline as to which types to stocks they can have in the portfolio. Now if you have 5 large-cap funds in the portfolio, you are essentially investing in similar stocks (top 100 stocks listed in the market) which give you very little diversification benefit. In technical terms, this is called portfolio overlap.
Difficulty in Portfolio Tracking
If you have too many funds in the portfolio, tracking of these funds in terms of performance, fund quality and any other changes get difficult.
So what is the ideal number of funds you should have in your portfolio?
One or two funds from each category based on the investment horizon should be more than enough to create an efficient portfolio.
How does Investica help you avoid these Mutual Fund Investment Mistakes?
Investica’s rating methodology ensures that consistency in fund performance is taken into consideration with the risk metric. Hence it should be helpful while selecting a fund.
Our Research and Advisory team is also at your disposal for any doubts or issues you may have about particular funds. This team will help you in portfolio creation also.
So, Start this Financial year by avoiding these mistakes and taking a wise investment decision.