The Mutual Fund Show: Is It Time For Large Caps After SEBI's Word Of Caution?
Large caps need to be on 'everybody's portfolio'. Here's why
As mid-cap and small-cap stocks continue to rally, prompting the market regulator to urge mutual fund houses to conduct “stress tests” on schemes based on them, it may be time to examine large caps.
That’s according to Rushabh Desai, Founder, Rupee With Rushabh Investment Services, who said large-cap valuations currently appear “quite reasonable”.
Stick with your asset allocations, he said on NDTV Profit’s The Mutual Fund Show. “Displaying risk parameters such as liquidity, volatility, valuation, and portfolio turnover serves to safeguard investors' wealth," he said on the market regulator’s initiative.
Mrin Agarwal, founder, Finsafe India, concurred. She said large caps need to be on "everybody's portfolio", adding the selection of a specific market capitalisation is influenced by one’s risk tolerance.
Valuations in mid and small caps, Agarwal said, “currently exceed the norm". "Investors should remain prepared for volatility regardless of the chosen market capitalisation," she suggested while advocating for long-term investments.
Desai, too, batted for vigilance. "Investors should be cautious about the lumpsum investment, especially in mid and small cap space," he said, adding: "Make better decisions—on when to enter and exit in the mid- and small-cap space."
Desai listed the reasons to invest in a large cap fund:
It's a good time to focus on investment.
Valuations are reasonable compared to mid and small caps.
These funds have underperformed mid & small caps over 1, 3, and 5 year periods.
Growth strategy underperformed value strategy over the past 3 years.
Agarwal said a good way to enter the large-cap space is through flexi-cap funds–which have an average holding of 50-60% towards this space.
“If you look at the long-term performances, you will find that the index funds would give you a better return compared to the actively managed large cap fund," she explained.
Agarwal's Top Fund Picks
Canara R Bluechip Fund
Axis Bluechip Fund.
Rushabh Desai's Top Fund Picks
UTI Nifty 50 Fund.
HDFC Sensex Fund.
DSP Flexi Cap Fund.
UTI Flexi Cap Fund.
Query 1: I had a SIP in SBI Equity Hybrid MF but stopped it after it collected a corpus Rs 1 lakh. Now I am looking for a mutual fund that will provide support for future medical expenses.
Name: Shrirang, Age: 65 years
Mrin Agarwal: He should look at investing in an ultra short duration debt fund or a short duration debt fund. You could also look at keeping a 25% in Fixed deposit. I would recommend: short duration debt funds from ICICI Pru, HDFC AMC.
Rushabh Desai: Stick with ultrashort duration or low duration or even liquid funds.
Query 2: My son is currently in the US and has an NRE account. He wants to start 5 SIPs and invest 10K in each for retirement corpus. So, what funds would you recommend us?
Name: Johnson JK, Age: 54 years
Mrin Agarwal: I would weigh towards going for mid- and small-cap funds. I would suggest Mirae Asset Midcap fund, Kotak Emerging Equity Fund and Nippon Small Cap Fund. In case they want to play it slightly safer, they can go for flexi-cap funds, as well.
Rushabh Desai: Make sure to check out the AMC website for specific requirements. My top picks would be Parag Parikh Flexi Cap Fund and DSP Flexi Cap Fund.
Query 3: I have been holding Axis Bluechip Fund (SIP-Rs 5,000) and UTI NIfty Next 50 Index Fund (Rs 10,000). I am planning to condolidate them into a single large and mid cap fund to simplify my portfolio.
But I'm divided between the Zerodha Nifty 250 Large & Midcap Index Fund (passively managed) and the HDFC Large and Midcap fund (actively managed). Can you recommend one of these options or suggest some other fund?
Name: Dilna, Age: 36 years
Mrin Agarwal: Don't get into a passive fund, just because you are reading it or someone is telling you. I would like to go with the actively managed fund.
Rushabh Desai: It's better to have one active fund and one passive fund, for portfolio diversification.
