Is it time to enter mid caps?

By Morningstar |  11-02-20 | 
 

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Below are my SIPs. I want to have Rs 50 lakhs in 15 years. My goals are my son’s education and retirement.  

  • Mirae Asset Large Cap: Rs 2,000
  • Axis Bluechip: Rs 1,500
  • SBI Focused Equity: Rs 2,000
  • Mirae Asset Bluechip: Rs 3,000
  • Axis Multicap: Rs 1,000
  • SBI Smallcap: Rs 1,000
  • SBI Ultra Short Duration: Rs 80,000
- Satyaranjan

We have a positive view on this the Mirae Asset Large Cap Fund driven and have assigned a Morningstar analyst rating of Silver on the fund. We have conviction on the manager and the process that the AMC follows and think that both of these factors should be able to hold the fund in good stead.

Read the analyst note

Mirae Asset Emerging Bluechip is a large and mid-cap fund that typically invested around 50-60% in large cap stocks. The fund is managed by Neelesh Surana and we have a positive analyst rating of Silver on the fund. The Axis Multicap invests around 70-80% in large cap stocks and has been performing well since its inception in 2017.

Read the analyst note

Axis Bluechip is a good fund and it stands out in its category.  Its managed by Shreyas Devalkar since he joined the AMC in November 2016 and uses a very well thought and structured process. The fund has been performing quite well since under Devalkar’s lead.

SBI Focused Equity is a concentrated high conviction strategy that invests in its manager R. Srinivasan’s high conviction ideas. We have a positive rating on the fund and we think that this adds good flavor from a diversification point of view in the portfolio.

SBI Smallcap is another great offering from the fund house and we think that a combination of the manager’s stock picking capability and adherence to the mandate are major positives on the fund.

SBI Ultra Short duration is a good fund to have from a diversification perspective and help have some exposure towards debt funds.

One observation that we would like to make here to look at your funds from a diversification perspective. You have a relatively high exposure towards large cap funds and you could consider investing some portion of it in other categories like mid and small caps. It would also be a good idea to look at how much overlap the large cap funds share at a portfolio level. Looking at minimizing across different styles of investing, even within the same category will help reduce your exposure towards individual stocks and therefore reduce risks significantly.

Is it right time to enter in Mid cap/Multicap/small cap?

- Ajinkya

The decision to invest in mid cap, multi-cap or small cap funds should ideally be based on your investment goals and risk appetite.

These are strictly long-term investment avenues and, therefore, the investment horizon in them should be around seven years or more. This means that the timing of investing in them holds little relevance.

You should first try and establish the right asset allocation mix (i.e. equity and debt allocation) for you based on your investment objective, risk appetite among other factors.

Within equities you should invest across the large, mid and small cap funds.

Preferably, large cap funds should be the foundation stone of any portfolio. Given they tend to be relatively more stable during uncertain times and market downturns, they play an anchors role in the portfolio.

This is followed by the mid and small cap funds. These funds are strong generator of wealth over the long-term, however, they tend to me more volatile than large cap funds in the interim.

If you are a relatively high-risk investor and with age on your side, you can consider investing around 70-75% of assets in equities and balance in fixed income funds.

Within equities you can invest 45% of assets in large and multi-cap funds, 15% in mid-cap funds and 10% in small cap funds.

But before you proceed with your investment and to ensure that it is on track and meets your requirement, you should consider opting for the services of a professional investment adviser. He will be in a better position to draft an investment plan for you considering all the requisite details.

I started investing in mutual funds in May 2019; Rs 30,000 every month. I will continue to do so for the next 5-10 years. Then another 10 years will be my waiting period.

Axis Midcap, Axis Bluechip, ICICI Pru Bluechip, Canara Robeco Emerging Equities, Kotak Emerging Equity, Kotak India Equity, Kotak Standard Multicap, Mirae Asset Emerging Bluechip, Mirae Asset Large Cap, SBI Small Cap.

- Lalit K

Good to see the long-term view you have taken. You will witness the true benefits of staying invested in equities over the long term. The funds where you are currently investing are mostly well managed funds and we have a fair amount of conviction on their prospects. You can read our analyst views on some of the funds at  http://www.morningstar.in/featured-reports.aspx

One thing that we observed is that the funds you are currently investing into are from different categories, with each having their own risk return and investment time objectives. Axis Mid Cap, SBI Small Cap, Kotak Emerging Equity (Small-Cap & Mid-Cap Fund),Kotak Standard Multicap (Multi-Cap Fund), Axis Bluechip, ICICI Pru Bluechip, Mirae Asset Large Cap  (Large-Cap Fund) Canara Robeco Emerging Equities, Mirae Asset Emerging Bluechip (Large & Mid-Cap Fund)

Small-Cap & Mid-Cap funds should be invested in with at least a 7-10 year investment horizon. Large-Cap & Multi-Cap funds one should have at least a 5-7 year investment horizon. Consider your own risk return objectives and ideal investment horizon to see which funds are the most suitable for your portfolio. We would also urge to you to look at stepping up your SIP amounts as time goes along.

You can read some of our analyst views here:

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