MF-Query Board

I am planning to invest Rs 2,500 per month in a Mid-Cap fund. What are your thoughts on Kotak Emerging Equity Fund? - Hari Seeba

Looking from a long-term perspective, mid-cap funds seem to be a great opportunity for those with moderate to moderately aggressive risk appetite. Moreover, you are investing via SIP and that makes it even better. Mid-cap funds in general are prone to large swings as against Large-Caps. Hence, SIP in mid-cap funds serves better results as you would be buying more units at lower net asset value (NAV) and lesser units at higher NAVs. Speaking about Kotak Emerging Equity Fund, this is one of the best funds in the category. As per our quantitative analysis, this fund ranks top in terms of all the parameters such as long-term performance, consistency of performance, risk and near-term performance.

It makes this fund an overall package. Speaking from a qualitative perspective, the fund held around 69 stocks as of March 2022. Moreover, around 34 per cent of the assets have been dedicated to the top 10 holdings, while 40 per cent of the assets make for the top three sectors with not more than 5 per cent in an individual stock. This shows that this fund has excellently reduced the concentration risk. The table below clearly shows that in all the periods of rolling returns, the fund was easily able to beat the mid-cap index. The minimum investment horizon to invest in this fund should not be less than seven years. This is more evident from the second table.  

As we can see, there was not a single seven-year rolling instance when this fund delivered less than 10 per cent and negative returns is out of the question. In the seven-year rolling returns, this fund has for a maximum number of times delivered returns from 10 per cent to 20 per cent. Therefore, investing in this fund with minimum investment horizon of seven years makes more sense. The fund has been adopting the combination of value and growth investing style.

If we look at its portfolio, companies like Persistent Systems, Supreme Industries, Schaeffler India and Thermax form the top holdings. On the sectoral front, the fund is overweight on capital goods, consumer discretionary, materials and chemicals whereas it is underweight on financial, healthcare, technology and automobile. This fund is managed by Pankaj Tibrewal since the past 21 years. This in itself is an achievement and shows why the performance is so consistent. Tibrewal also manages or co-manages Kotak Small Fund and Kotak Equity Hybrid Fund.  

I need Rs 50 lakhs in 10 years to build a house. Can you please suggest where to invest and how much to achieve this goal? - Raghuvir Seth

Nothing works better than allocating your investments to a financial goal. This often helps you track your investments better and also gives you a sense of achievement. In your case, you are planning to build a house in the next 10 years for which you would be requiring Rs 50 lakhs. Having said that, we are assuming that the requirement of Rs 50 lakhs is what if you bought your house today. And being an appreciating asset, we need to account for inflation in order to have a clear understanding about your actual requirement. Inflation pertaining to real estate depends upon the locality in which you wish to build the house.

Crunching the numbers of National Housing Bank’s (NHB) Housing Price Index (HPI) indicates that the growth of housing prices across India is on an average 5 per cent annually. Now this can be different for you. However, as we are not aware of your locality, we assume 5 per cent as housing inflation. Considering this, at the end of 10 years you would actually need Rs 81.44 lakhs instead of Rs 50 lakhs. As we have now understood your actual requirement, based on this we would calculate how much you require to invest. We assume that you are a moderate investor who invests 50 per cent in equity funds and 50 per cent in Debt Funds.

The rate of returns assumed for equity and debt funds is 12 per cent and 7 per cent, respectively. Therefore, your likely portfolio returns would be around 10 per cent. Keeping this in mind, if you wish to invest lump sum, then you would need to invest Rs 31.4 lakhs today. On the other hand, if you are investing via the systematic investment plan (SIP), then you would need to invest Rs 40,500 per month for 10 years. For this purpose, investing in large-cap index fund and mid-cap fund is ideal for an equity portfolio and short duration fund and corporate bond fund for debt portfolio.