I have been investing in two significant cap equity funds for the previous 5 years. Should I now discontinue one fund and invest in a mid-cap or smaller cap fund to diversify?
—Arvind Iyer
Ideally, bulk of the equity allocation should really be into significant-cap equities as they are much less risky than midcap and smaller-cap equities. Though mid-cap and smaller-cap equities have the possible to provide a lot larger returns than significant-caps, they are more volatile and involve substantial danger as evidenced by the sharp drawdowns (about 50%) that these segments witnessed from the peaks in January 2018 till March 2020. Allocation to the mid- and smaller-cap segment can be restricted to 10-15% of the equity allocation.
Large-cap funds do supply some exposure to the mid- and smaller-cap segment (generally <10%) based on the fund manager’s views on these segments across time. To improve your exposure to the mid- and smaller-cap segment, you can look to obtain exposure to flexi-cap funds which have a tendency to invest 70-75% of the equity corpus into the significant-cap segment and rest in mid/smaller cap. Alternatively you could invest in pure play mid and smaller cap funds, preferably through SIP or STP route. You can also evaluate the sector and style diversification at a portfolio level, and the extent of overlap in the equity funds in your portfolio to assess the correct degree of diversification that the portfolio equity funds supply.
I have been investing in a SIP for 4 years. Though I do not will need dollars now, should really I redeem some of it in case the markets go down?
—Gautam Sharma
You should really continue to keep invested if you have a extended investment horizon, and can even look to allocate additional when any corrections take location as these present an chance to purchase units at less expensive rates. Over longer horizons, equities have a tendency to outperform most asset classes.
You can take into account re-balancing your asset-allocation back to the target weights in case of any substantial drift due to industry movement. Withdrawing any corpus would reduced your portfolio worth to the extent of the quantity withdrawn and you could possibly shed out on any subsequent gains on the withdrawn corpus that would have accrued till the finish of your investment horizon.
The writer is director, Investment Advisory, Morningstar Investment Adviser (India). Send your queries to