Samvat 2083: How investors should approach SIPs, mutual fund switches and portfolio rebalancing
By Google News Personal Finance ·
The beginning of a new Samvat year is an opportunity for investors to review their mutual fund portfolios, assess their asset allocation and check whether their investments remain aligned with their financial goals.With market participants expecting earnings growth to drive equity returns in Samvat 2083, investors may need to focus more on fund performance, portfolio quality and investment discipline than on
short-term market movements.Raamdeo Agrawal, Chairman and Co-Founder of Motilal Oswal Financial Services, an Indian financial services firm, sees the potential for strong market returns over the coming year, citing relatively low valuations and higher earnings growth.
He also identified currency stability, a possible decline in crude oil prices and the return of foreign investors as potential market drivers.Avinash Agarwal, Senior Vice President and Head of Equity at Bandhan Life, an Indian private life insurance company, expects moderate and selective returns, with earnings growth likely to be the primary driver.
He believes banking and financial services, healthcare, infrastructure, select industrials and consumption-oriented businesses could offer opportunities, subject to valuations.But what should individual investors do with their existing investments?Should you continue SIPs in mutual funds that are lagging?A mutual fund should be compared with its own benchmark and category peers, not simply with the Nifty 50, said
Aditya Agarwal, Co-Founder of Wealthy.in, a wealth management platform for mutual fund distributors.He cited the difference in recent performance between large-cap and small-cap funds.
Over the month under consideration, Nifty 50 index funds gained around 6%, while the median small-cap fund declined about 3%.
However, on a year-to-date basis, the median small-cap fund gained around 7.5%, while Nifty 50 index funds remained down about 8%.This highlights why investors should avoid judging a fund on the basis of a single month's performance.If a scheme is fundamentally sound and is lagging because its investment category is temporarily out of favour, continuing the SIP may be reasonable.
However, if a particular category has become overweight in the portfolio, investors can redirect future SIP instalments towards underweight categories instead of immediately redeeming existing investments.When should you switch an underperforming mutual fund?Agarwal said investors should examine whether a fund has consistently underperformed its benchmark and category peers across different market conditions.A scheme
that trails during a rally but falls less during a correction may simply be following its investment strategy.
However, a fund that consistently underperforms during both rising and falling markets warrants closer scrutiny.Investors should also examine rolling returns across multiple three-year periods, changes in fund management, deviations from the stated investment strategy and sharp increases in fund size, particularly in less liquid market segments.Multiple warning signs persisting over an extended period could justify
switching, rather than a short-term performance gap alone.What does switching a mutual fund mean for your taxes?Switching from one mutual fund scheme to another is treated as redemption from the existing scheme and a fresh investment in the new one.
This can trigger capital gains tax and exit loads.Under current rules, short-term capital gains on equity-oriented funds, for units held for 12 months or…
Originally published by Google News Personal Finance
