Here are some broad observations. We suggest that investors avail of the services of a financial adviser who will provide specific guidance, taking into account your goals, risk profile and earnings.
I invested in the Credit Risk and Short Duration fund of an AMC in Q1 of 2019 (calendar year). I am concerned with extended period of stagnation followed by sudden deterioration in returns on Investment. So much so that the gap between actual and industry benchmark is over 4% and that too in a debt fund. This came to light when I was doing a common sense check of my investments earlier this week. Should I stay invested or take the hit of the exit load of 3% and 0.5% respectively?
- Maneesh
Though I am not sure which funds you have invested in, but broadly your decision to stay invested or redeem would depend on whether you have the requisite risk appetite to invest in such funds.
Also, I am assuming that the fund that you have invested in the short duration category is also run with a credit-oriented investment approach.
Therefore, it’s important for you to understand what you have invested in and why your funds are underperforming.
Credit funds or funds which are run using credit centric strategy, predominantly invests in high yielding debt securities having lower credit rating (i.e. having sub AAA rating). In simple words, this means that these securities have high credit risk.
Over the last two years, credit risk in the Indian fixed income markets have been at the forefront. Number of companies, which are a part of the credit risk funds have defaulted on debt obligation resulting in the loss to the fund.
Also, you need to understand that exiting your investment at this juncture would result in you booking your notional loss into actual loss. Lot of the AMCs which have seen downgrades and defaults in their fixed income funds are working towards a resolution to recover their investments. You will miss out on the returns which the fund would generate when the recovery happens. In your case the loss would be more as you will have to pay exit load too.
Given the risk attached, such funds are typically for investors with a relatively long-term investment horizon of 3-5 years.
Therefore, investors wanting to invest in credit funds must have the stomach to withstand the risks associated with such strategies.
You can also check the track record of the fund house with regards to credit strategies. Check how good they are in handling such scenarios. If the fund house has managed such cases in the past and have been able to recover the losses effectively, then this could help you in taking the decision which is right for you.
Franklin India Credit Growth fund had not given too good returns in last year & they also write down their exposure in Vodafone & Idea recently. What is better right now? Whether to hold till maturity or to exit?
- Pratik
First, it’s important for you to understand what you have invested into, what you can expect from this investment and why your fund is underperforming.
Credit funds or funds which are run using credit centric strategies typically invests in high yielding debt securities having lower credit rating. In simple words this means that these securities have high credit risk.
Over the last two years, credit risk in the Indian fixed income markets have been at the forefront. Number of companies, which are a part of credit risk funds have defaulted on debt obligation resulting in the loss to the fund. This fund is one among them.
Also, you need to understand that exiting the fund at this juncture would result in you booking your notional loss into actual loss. The AMC has been working towards getting a resolution with the companies which have defaulted. In effect, you may miss out on the returns which the fund would generate when the recovery happens.
Given the risk attached, such funds are typically for investors with a relatively long-term investment horizon of 3-5 years.
You should also note that Franklin Templeton has created a niche for itself in running credit-oriented strategies. They have also shown the ability of bringing funds back on track when faced with such adversities.
Having said that, your continuation in the fund would depend on whether you have the requisite risk appetite to withstand the risks associated with such strategies.
Also, you can consider opting for the services of a financial adviser who can evaluate the aptness of this fund in your portfolio and help you take informed investment decision.
I'm DIY investor. I calculate funds returns thru XIRR (for all SIPs, SIPs + Lumsum + SIP Change amount) & CAGR (for one time investment) in excel. I wanted to validate if this's correct approach to validate performance. 1. Is there any XIRR benchmark to say that above this % is good or great and below this is poor based on year(s) of investment? Can I trust fund performance if XIRR shows more than 10% provided all cash flow dates are accurate? 2 Is this any way to validate/tally performance?
- Krish
The XIRR function in excel is the best way to calculate the returns on a fund or a portfolio of funds. There are no specific benchmarks for XIRR, it all depends on the asset class and the investment holding period. Over a long term a 10% XIRR is possible in equity funds.
These are my SIPs. I am 35-years old. Your views please.
- Axis Multicap: Rs 15,000
- HDFC Index Sensex Plan: Rs 10,000
- Mirae Asset Emerging Bluechip Fund: Rs 10,000
- Parag Parikh Long Term Equity Fund: Rs 5,000
- Sanket
Your portfolio consists of individual funds that stand out on a quantitative as well as a qualitative basis.
The HDFC Index fund acts to diversify your portfolio into passives that track the index.
Mirae Asset Emerging Bluechip is a Large and Mid- cap fund which currently carries a Morningstar Analyst rating of ‘Silver’. We think that the fund stands out in terms of the manager’s stock picking capabilities and ability to execute the strategy efficiently.
Axis Multicap was recently launched and has been doing well since. We have a positive analyst rating of a few of the other funds managed by the same manager.
Though we don’t have an analyst view on the Parag Parikh Long Term Equity fund, the fund has remained a consistent performer and has stood out in the way that it’s been managed.
Your current portfolio carries a significantly higher exposure towards large cap stocks as opposed to mid and small caps. You might want to relook at this allocation. Take the Axis Multicap and the Parag Parikh Long Term Equity funds for instance. Both of them have an exposure of over 70% towards large caps. Another option will be to invest some portion of your portfolio in high quality debt funds with a view to diversity your portfolio.
I am 43 years old and invest via SIPs. My goal is Rs 1 crore in 15 years as my retirement corpus. Please review my portfolio and sip amount and advise to include a good small cap.
- Kotak Standard Multicap: Rs 2,000
- Mirae Asset Emerging Bluchip: Rs 2,000
- ICICI Prudential Bluechip: Rs 1,000
- Mirae Asset Large Cap: Rs 1,000
- DSP Mid Cap: Rs 1,000
- Gopal Singh
The funds you have named are fairly well managed strategies. Large-cap funds should ideally form the core holding of any investors portfolio as they add an element of stability to portfolios. Small-cap stocks are excellent wealth creators over the long term, though can be quite volatile in the short term. But if you have a long term horizon, small cap funds can serve you well.
You can refer to this link for our top rated funds.
You currently invest Rs 7,000 per month. Even with the expected rate of return as 15% you will not be able to achieve your goal. You should always increase your investments in line with the increase in your income. This strategy would help you to achieve your long-term financial goals.
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