I have been investing in two huge cap equity funds for the previous 5 years. Should I now discontinue one fund and invest in a mid-cap or compact cap fund to diversify?
—Atul Kumar Mahajan
Investors really should stick to an asset allocation-based strategy (mix of equity and debt). Higher the investment horizon and danger appetite, greater can be the allocation to riskier asset classes such as equity. The bulk of the equity allocation really should be into huge-cap equities as they are significantly less risky than mid-cap and compact-cap equities. Allocation to the mid- and compact-cap segment can be restricted to 10-15% of the equity allocation.
Large-cap funds do provide some exposure to the mid- and compact-cap segment (commonly <10%) based on the fund manager’s views on these segments across time. To boost your exposure to the mid- and compact-cap segment, you can look to achieve exposure to a flexi-cap fund. Such funds have a tendency to invest the bulk of the equity corpus into the huge-cap segment (~70-75%) and rest into the midcap and compact-cap segments. Alternatively you can invest in pure play mid and compact cap funds, preferably by means of SIP or STP, provided that these segments have appreciated significantly more than the previous 1 year.
I have been investing by means of SIP for 4 years. Though I do not need to have any revenue now, really should I redeem some of the gains?
—Arun Awasti
Equities are more volatile than most asset classes with even the possibility of a capital loss more than the brief-term. However, as the holding period increases, the danger of capital loss diminishes. You really should continue to keep invested if you have a lengthy investment horizon, and can even allocate additional when any corrections take spot. Investors really should stick to their lengthy-term strategic asset-allocation which in turn depends on their danger appetite (potential and willingness to take danger) and not attempt and time the markets. You can contemplate re-balancing your asset-allocation back to the target weights in case of any important drift due to industry movement. Withdrawing any corpus would decrease your portfolio worth to the extent of the quantity withdrawn and you could possibly shed out on any subsequent gains on the withdrawn corpus that would have accrued till the finish of your investment horizon.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