MF QueryBoard

From among ETF and flexi-cap funds, which is a better choice for long-term wealth creation? - Srinivas Vedula [EasyDNNnews:PaidContentStart]

Talking about exchange traded funds (ETFs) and flexi-cap funds, both are different structurally. ETFs can be traded on the exchange and flexi-cap funds being open-ended mutual funds cannot be traded on the exchange. It is to be noted that comparing ETFs with flexi-cap fund is not an apple-to-apple comparison. Both of them have their own set of pros and cons. Hence, you should first define the purpose of your investment, then assess your risk profile and finally decide your investment horizon. There are various kinds of ETFs, right from Large-Cap-dedicated to even smart beta ETFs. Therefore, making the right choice here is important. 

You can invest in them depending on your risk appetite. The best part is that their expense ratio is quite low when compared to mutual funds. However, your broker may charge a brokerage on buying and selling of ETFs. The major disadvantage of investing in ETFs is liquidity. On the other hand, flexi-cap funds are mostly large-cap-biased funds with some exposure to Mid-Cap and Small-Caps as well. From a long-term perspective, these funds do perform better and are less risky than their benchmarks. So, the question is which one to pick?

If you are someone who is looking for exposure to large-cap stocks (top 100 stocks by market capitalisation), then ETFs can prove to be a better option provided your brokerage is not on the higher end. Moreover, as ETFs are exchange-traded, you need to have basic knowledge of buying and selling shares or else you can opt for index funds. However, if you are looking for a more diversified investment option, flexi-cap funds score over ETFs as they also invest in mid-cap and small-cap stocks. Moreover, if you wish to invest via SIP, a flexi-cap fund is a better option than ETFs. 

My DSP Tax Saver lock-in period is over. The cost is about Rs 1.7 lakhs. I don’t need the money right away for anything. What factors must I take into account before choosing to leave? - Arvind Bhalerao

Investments in tax-saving funds should be included in a comprehensive financial planning process just like investments in funds from any other category. Therefore, even though a tax-saving fund has a three-year lock-in period and gives you the opportunity to redeem your investments after that, you are not required to do so. The choice to withdraw from a fund should be well thought out after taking into account several aspects. Does it have a promising future? Has the fund management team undergone any changes?

Has the fund consistently failed to meet expectations in delivering returns? Do the fund’s basic changes make it inappropriate for your portfolio? Has your risk appetite changed as a result of which the fund no longer fits your risk profile? Has the fund achieved the objective that you invested for? Has the investment fund fulfilled its role in the portfolio as intended? Even if you invested in an ad-hoc way just to save tax, you can still use this investment and match it with your goals even without giving it any specific investment objectives or without having a financial strategy. After that, you can build your upcoming investments around it.

I need some advice on whether I should stop my SIP in Axis mutual funds. I have been investing in Axis Blue Chip Fund and Axis Focused 25 Fund for over two years. Both of them have been underperforming and have not been able to recover even after the market is at an all-time high. Is it due to the scam as Axis mutual funds were performing at a peak for the past many years but thereafter have not gained any momentum? - Vinayak Yadav

The last two years have seen a terrible performance from both of these Axis initiatives. In reality, a majority of Axis equity plans have underperformed throughout this time. The benchmark and the category have both outperformed the Axis Focused 25 Fund by seven percentage points. The scheme has had a 10 per cent decline so far this year, again falling behind its benchmark and category which provided 8 per cent and 4 per cent, respectively. In 2021, Axis Blue Chip Fund underperformed both the benchmark and its sector. In contrast to its benchmark and category, it has produced negative returns this year.

You cannot, however, attribute the dismal performance on the most recent episode. The fund house had a reputation for making risky bets and pursuing growth strategies. When the market learned to understand values and price, the schemes began to fall apart. Certain investment techniques are consistently favoured by the market during particular times. However, evaluating the performance based on a little window of time or a certain market phase could be deceptive. In the upcoming days, the growth plan may be favoured. Or the fund house might alter its approach.

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