MF QueryBoard

Is it possible to allocate more than half of my portfolio to small and Mid-Cap funds? - Brijesh Kale[EasyDNNnews:PaidContentStart]

When considering long-term investments with a horizon of 10 years or more, it's crucial to avoid excessive concentration in one type of fund, especially solely focusing on mid and Small-Cap funds. Allocating 50-60 per cent of your portfolio to these funds is not recommended.

A better approach involves diversifying your equity investments through flexi-cap funds, which invest across large, mid, and small-cap stocks. By choosing a flexi-cap fund, around 25-30 per cent of your portfolio will be exposed to mid and small-cap stocks, while the remaining 70 per cent will consist of Large-Caps. This strategy allows you to focus on stocks that offer growth with stability, typically found in large-caps, while allocating a smaller portion of the portfolio to riskier assets.

Although mid and small-cap funds might offer higher long-term returns compared to flexi-cap funds, they tend to experience more short-term fluctuations and are generally considered riskier. Having a higher exposure of 50-60 per cent to mid and small-cap funds can significantly increase the volatility of your portfolio, which is not advisable.

If you are comfortable with higher risk and volatility for the potential of higher returns, you can consider adding a mid or small-cap fund alongside a flexi-cap fund, slightly increasing your portfolio's allocation to mid and small-caps. However, making them the core of your portfolio is not advisable. A balanced and diversified approach is key to achieving sustainable long-term growth and stability in your investments.

Should I exit from my poorly performing mutual fund scheme? - Raman Rao

Before contemplating an exit from a mutual fund scheme that appears to be underperforming, it is vital to confirm its actual status as an underperformer. Underperformance is characterised by lower returns compared to other funds within the same category 

Here are the steps to consider:
■ Assess Relative Performance - Evaluate the fund's performance in comparison to other funds within the same category. Is it the only fund experiencing a decline, or have other funds also been affected? A drop in returns may not necessarily indicate underperformance and could be a result of overall market conditions.
■ Consistency of Underperformance - Be patient and observe whether the underperformance remains consistent. Avoid making hasty decisions based on short-term fluctuations. It is advisable to give the fund at least two to three years to gauge its performance pattern.
■ Investigate Fund Manager Changes - If the fund has undergone a change in its fund manager, assess whether the underperformance coincided with this change. If so, it may be a signal to consider exiting. However, gather information through interviews or the fund house's communications to understand the reasons behind the underperformance.
■ Consider Investment Style Trends - Analyse whether the fund's investment style has temporarily fallen out of favour. In certain instances, the overall market climate may favour different investment styles, such as growth versus value. If the fund's foundation remains strong, it might be prudent to stay invested for a while longer.
■ Focus on Objectives - While everyone desires exceptional returns from their chosen fund, market conditions can impact performance. If the fund fails to meet your objective of generating reasonable returns, it might be time to consider an exit. Holding onto an underperforming fund without a justifiable reason may not be in your best interest.

Before making any final decisions, it is crucial to carefully consider the above points. If you find compelling reasons and have thoroughly evaluated your options, you may choose to exit the mutual fund scheme. Remember, maintaining a wellinformed and thoughtful approach to investment decisions can help you navigate the dynamic nature of the market and optimise your portfolio's performance.

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