Please review of my MF portfolio

Personal finance
3

I dont want to go with Large/mid/small… I just want a flexicap with largecap bias.
I liked PP flexicap style of investing - Value, International exposure, only 30 stocks.
PP tax saver - same as PP flexicap minus International exposure - i need it for 80C

4

should this create AMC risk? to avoid AMC risk should i add one more flexicap?

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5

Fine.

But remember that no investing style will give good returns in every market condition. Value investing will lag in a bull market, value stocks don’t move much when growth stocks are going up, and international stocks may or may not give better returns compared to our market, and 30 stocks means concentration, it could be an advantage or a disadvantage.

So you should also know about the kind of return the fund has given so far, and if that kind of return is ok with you.

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I follow one thing here. Have different AMC’s. Just for diversification and reasons. I suggest you take mirae asset tax saver

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I don’t know how much AUM PPFAS has, but I do know that it is not as huge as the biggest fund houses like HDFC or SBI etc, but it is a popular fund house, so AMC risk may not exist.

Although fund manager risk may exist, if both the funds are run by the same manager/managers. There is always the possibility of managers exiting the fund house. So ELSS fund can be chosen from another fund house, as all ELSS funds have lock in period and there is a chance of redemption after the lock in period, and the next investment could be from another fund house, unlike the long term investment which is in the flexi cap. So you can look at this aspect.

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8

@GB26 @raoawesome

Thanks for the suggestions. Planning to go with these funds

  • Parag parikh flexicap - 20k
  • Axis growth opp (large and midcap) - 20k
  • Mirae tax saver -10k
9

I don’t know about the funds you have selected but if you have read about the funds’ investing strategy, their past performance and are ok with them, then you can go with them.

But you must know that returns from the market are not in linear fashion, you may get 15% in 1 year, and -10% in the next year, so you have to have time on your side.

And why are you investing in MFs, what exactly for?

10

I need better returns than FD (9-11%). I will redeem my investments after 10 years

11

Sounds reasonable.

Indian MFs have given more than 12-15% so far, some funds more than that. But as the market matures, the returns will diminish, but yes considering the time frame of 10 years, it is reasonable to expect 11% and mostly likely will happen too.

Although the returns will be non linear, so you should be able to see and stay invested in negative times too. Even a flexi cap can fund go to -20%.

Also consider the possibility of a market fall after 8 years, in your 9th and 10th year of investment, so if you have a number in mind, a number for a corpus, aka investing for a goal, and if you have reached even 75% of such a corpus, you should be ready to redeem and exit the market, so as to not to lose the accumulated corpus if a fall were to happen.

If you are not investing for any goal in particular, then you can learn, modify your investments as you see fit.

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12

Sure. I am new to this and exploring this since a month. Thanks for your guidance and giving hope to invest in MF’s.

@GB26 Do you have any idea on senior bonds in Kotak cherry app/Wint wealth. Returns is ~10% XIRR, post tax we will get ~7% which is still better than FD. And they are claiming they are adding the bonds after doing enough research

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13

No I don’t have any information regarding your query, but here is a recent topic opened on the topic with some replies, check this. You can contact the members for any further information.

You can search for cherry app, I have not heard about it.

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14

Thanks for the pointer.

15

And it looks like we can buy Wint bonds from Zerodha itself.

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I suggest you go through below . This can help you make decisions well.

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We can’t buy from Zerodha. In wint wealth website, it will ask demat no, so whatever we specify, bond units will be credited to that demat account

18

Yeah… But some funds like Parag Parikh gave outperforming returns so why to restrict ourself to Index returns. Taking extra risk might give extra returns.

I agree Index fund is a replacement for Large caps but not for Mid and Small caps.

  • Some years Large cap indices will go sideways and midcaps may outperform. Flexicap gives the advantage to fund manager to move across market caps.

  • I feel still room is there to explore in Mid and small caps.

  • Our Index is based on market cap. Stocks like ITC is just 3% in Nifty 50 whereas active fund manager can hold upto 10%. HDFC, RELIANCE which are market heavy weight didn’t give any good returns in last 1 years. whereas ITC, ICICI bank gave good returns. If you look at active funds most of the funds are having higher allocation to ICICI and ITC.

  • If you look at Parag Parikh flexicaps, companies like Amazon (International equities) which gave amazing returns.

19

You know some things, good to know that. Often times, people don’t have any idea and they simply want to get good returns and chose MF route.

Nifty is large cap but Nifty Next 50 is not a large cap index, it has return and volatility like a mid cap fund. Nifty Midcap 150 is obvious. Index investing does have its merits, but the returns of these indices are not comparable always, one year Nifty rises, other indices stay flat, other years other indices perform and Nifty lags. Returns aside, active funds do have one advantage over index funds, which is active management, so they fall less than index funds. It is for this we pay the expense ratio, not for the Alpha they generate.

What you are saying about stocks is with the benefit of hindsight, what if active funds failed at their bets, would you have had the same praise then? Also, we cannot possibly know what active fund managers buy/sell/reduce before hand, it is only after a month we will know.

Amazon may have performed well, but how much allocation it has in the entire fund’s PF and how much impact it has on your investments matter. If it is less than 1%, what good would it do? It is one thing to buy Amazon shares, and another thing to have it present in the international equities part of our fund.

20

I don’t know, so it is the other way around, buy from the site, they reflect in Zerodha, and not buy directly from Zerodha. Okay.

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21

Yes, even me too. But only with small caps. I am willing to risk a small amount in small caps MF. But I don’t prefer MF’s that have fund managers that use fundamental analysis.

I would try Smart beta funds and quant funds that use mathematical quantitative analysis. It removes the human factor. However it’s completely uncharted territory for me as I have not done any research on that. These are the questions or factors I look at:-

  1. How much % of active MF particularly smart beta funds and quant funds have beaten nifty 50 index yearly?

  2. Historical data past 2 years i.e performance of their algorithm and methods or the performance of fund manager that uses these algo & quantitative methods?

  3. Which all smart beta funds and quant funds have consistently outperformed the nifty index over last 3 to 4 years?

@GB26 if you any idea or source share them

22

Algorithmic or some system funds don’t have much history, and whatever is available is not sufficient. If the history is only the last two and a half years, then you know that it has been a huge bull run, so not useful.

I don’t exactly know about quant funds from fund houses but strategy indices’ definitions are not accurate, they are arbitrary, so there is no clarity here unlike with a market cap index.

Also, from a fundamental stand point, I don’t think any fund manager would deploy an automated or systematic strategy for small cap stocks, for a few reasons. One reason is that the companies are small, the businesses could be niche, so even if a system gives a sell signal based on some parameters, selling a golden goose could turn out to be a costly mistake, as a small cap stock could become a multibagger in just a couple of years.

Another reason is that, the information available is very less, and there could be a few red flags per se, but given the size of the company, they are not considered as red flags but should be monitored things, so a manager uses his own experience, expertise and wisdom for both buy and sell calls, qualitative analysis comes into picture. So I would rather read about such small fund managers’ interviews, interpret and infer my own things, and then would go with them. I did in fact, read about them but did not invest in any small cap funds though, not needed for me.

There is the churn, if they keep on buying and selling based on their signals, the churn will be high, so could be the expense ratio.

Then there is impact cost for institutions, the impact cost will be high for small stocks, it is not easy to buy or sell small stocks.

So I am not sure, if algorithmic, quant, or any other systems alone can deliver good returns consistently in small caps.