Dhaval Kapadia, Director, Portfolio Specialist, Morningstar Investment Adviser (India) answers queries in The Financial Express, from where the below has been taken.
I have invested in a balanced fund for three years. Now I want to invest in an equity diversified fund. Should I redeem my units from balanced funds and invest that as a lump sum in equity funds?
– Nilesh Bahety
Based on your view of the equity markets, you can either redeem all units and invest as a lump sum in equity funds or through a Systematic Transfer Plan (if the equity fund is from the same asset management company, or AMC).
If you believe that the markets appear to be a bit overvalued, given their handsome performance in the last one to two years, you could invest through an STP.
If the diversified equity fund is from another AMC, then you would need to redeem the units and invest in a liquid fund and start an STP to the desired equity fund.
I want to invest Rs 3,000 in SIP. In the current market scenario, should I invest in large-cap or mid-cap funds?
— Mahesh Arkar
A systematic investment plan, or SIP, allow an investor to deploy the principle of rupee cost averaging to take advantage of market volatility. When the NAV of a fund is high (typically when markets have risen) fewer units of a fund would be purchased from the investment amount and when the NAV is lower more units of a fund would be purchased with the same investment amount, thereby reducing the average cost of units purchased over a period of time.
Hence, if you intend to invest through SIPs over a long tenure (5-10 years), then you could divide the allocation between a large cap and mid-cap fund, perhaps in equal proportion or 60:40 in favour of large caps based on your risk appetite.
Alternatively, you could invest in an equity diversified fund that invests in a mix of large, mid and small caps in a proportion based on the fund manager’s views.
