The Mutual Fund Show: Should You Keep Investing In Flexi-Cap Funds?
Investors need to consider a long-term view when it comes to such schemes. Here's why.
Managers of flexi-cap funds can decide the allocation to large-, mid- and small-cap stocks. Given the recent underperformance of the broader markets, investors may have second thoughts about such funds.
However, Rushabh Desai, founder of Rupee With Rushabh Investment Services, urged investors to take a long-term view.
It's very natural for flexi-cap funds to underperform in the short- to medium-term perspective, he said on The Mutual Fund Show. "It's important to look at the fund from a long-term perspective since inception."
Flexi-cap mutual funds offer investors the freedom to invest across segments and sectors based on the outlook, Kshitiz Mahajan, managing partner and chief executive officer of Complete Circle Wealth Solutions LLP Pvt., said. "One can invest with a horizon of 5-7 years," he said.
He listed the factors to shortlist such schemes:
Consistency in five-year rolling returns.
Longevity of fund manager with fund.
Compare with category and index average.
See out performance or underperformance.
Evaluate risk taken for 1-2% of outperformance.
Mahajan urged investors to focus on value growth. On this count, he listed the metrics they must examine:
Price-to-earnings ratio.
Price-to-book ratio.
Price-to-sales ratio.
Price-to-cash flow ratio.
Dividend yield.
Long-term earnings.
Historical earnings.
Sales growth.
Cash-flow growth.
Book-value growth.
"70% and above since inception is healthy," Desai said on flexi-cap funds' outperformance strike rate. "From fund's inception shows broader performance and outperformance from recent years is key."
Desai's top picks: Parag Parikh Flexi Cap Fund, Franklin India Flexi Cap Fund, DSP Flexi Cap Fund, Canara Robeco Flexi Cap Fund and UTI Flexi Cap Fund.
"Franklin India Flexi Cap Fund, HDFC Flexi Cap Fund and Quant Flexi Cap Fund are the funds that we are looking at," said Mahajan.
Query 1: I want to retire by the time I'm 45 years old. Currently, I have no mutual fund investments and can invest Rs 5,000 per month. What (Retire Early) funds can you recommend?
Name Santosh Kumar I Age: 32 years
Kshitiz Mahajan: Invest Rs 5,000 in monthly SIPs (systematic investment plans) for 13 years. Increase the investible amount by 15% annually. With 13% expected returns, one can yield a corpus of Rs 42 lakh. Increase SIP amount or time of retirement.
Rushabh Desai: As and when he can increase the amount, he should invest in flexi-cap and mid-cap funds.
Query 2: I have invested Rs 10 lakh in Aditya Birla PSU Fund in January. The returns from this fund have been fluctuating since investment. Should I switch to some other fund or stay invested?
Name: Krishnan I Age: 46 years
Rushabh Desai: Unfortunately, he has entered at a very wrong time for a PSU Fund. If he is in profit right now, I would suggest him to shift to a flexi-cap fund. But, if you're in loss, then just be patient and wait for the right time.
Kshitiz Mahajan: Hold the fund, as we're at the peak of the interest cycle. Allow rate cut and appreciation to come. You can withdraw funds once benefits are reflected in NAV (net asset value of mutual fund). Keep a portfolio with equity participation as post-tax returns in fixed income won't be able to beat inflation.
