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5 Mutual Fund Investment Questions - Answered

Here are 5 common questions that Mutual Fund investors are asking right now – simplified and answered, jargon-free

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Despite the industry’s collective AUM soaring past the 25-lakh crore mark last month, it’s a fact that Mutual Fund investing has flummoxed many a lay-investor in recent times. With stock markets remaining reactive and volatile, and global as well as local factors hampering debt fund returns, the year 2018 has indeed been a confusing time for investors. Here are 5 common questions that Mutual Fund investors are asking right now – simplified and answered, jargon-free.

What kind of debt funds should I invest in right now?

If you’ve invested into debt funds over the past year, you’ve likely had a harrowing time! A deadly cocktail of rising inflation and crude prices, the falling Rupee, and rate hikes from the central banks, have sent bond prices spiralling downwards. Most Gilt funds (considered safe!) have delivered -5% to -6% returns over the past year. Thought bond yields have already risen significantly, there’s no immediate trigger in sight that could lead them to start falling heavily. Stick with short term debt, corporate bond and credit risk funds. Medium duration debt funds could form 20% of your portfolio.

Should I stop my SIP’s and restart them later?

Absolutely not. The very magic of long term SIP returns arises from the fact that that they average your unit costs through the ups and downs of the markets. The moment you begin to stop and start your SIP’s you take this away and severely compromise your potential long-term returns. Keep your SIP’s running in a disciplined manner and do not get too worried about short term lack of returns. In fact, SIP’s have traditionally worked best when the initial (accumulation) phase has taken place during severe bear markets!

I am a long-term SIP investor with a 100% equity portfolio. What should I do?

You should follow the simple strategy of booking out your load free units and re-starting 12-18-month STP’s (Systematic Transfer Plans) back into the same funds, or into multi-cap funds of the same asset management company. This will ensure that you temporarily ‘step aside’ from equities, while systematically building yourself back up to a 100% equity allocation over a year and a half.

What should my asset allocation be at the moment?

If you’ve already accumulated a portfolio (that is, you are not a long-term SIP investor who is presently building up a portfolio), you should ideally be more ‘risk-off’ at this stage. Aim for the following asset allocation: 20% into dynamic asset allocation funds, 20% into large cap and multi cap funds, 10% into mid cap and thematic/ sectoral funds, and 50% into a mix of short term debt, credit risk and corporate bond funds. You may even consider replacing the corporate bond funds with equity savings funds, as they have the potential to deliver “debt plus” returns with high levels of tax efficiency.

Should I get out of equity mutual funds altogether?

No, you need not take such as extreme measure. While valuations and global factors are certainly suggesting a more prudent approach, there’s no need to press the panic button and move out of equity mutual funds altogether. Rather, aim to book profits and shift around 50% of your total portfolio to debt-oriented funds. Within your equity funds, you may consider doing a temporary ‘stepping aside’ by switching to liquid funds and immediately starting 12-18-month STP’s back into equities.


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