Every portfolio must have a large-cap fund

By Morningstar |  31-07-18 | 
 

Our fund research team answered a few queries that came in from our readers.

While they have commented on each query below, there is a common factor that applies to all three; is no large-cap fund in all your respective portfolios.

Large-cap funds should ideally form the core holding of any investor's portfolio. While they may not be huge wealth creators such as small/mid-cap funds, from an asset allocation perspective, large-cap funds add an element of stability to portfolios.

You can find a list of large-cap funds here which have been rated by our analysts.

I'm 21 years old with an investment horizon of seven years at the least. I would say that my risk profile is Medium to High. I would like to generate close to 20% CAGR. I do a monthly SIP into four mutual funds, growth option, all direct mode.  

  • Kotak Standard Multicap Fund: Rs 2,000
  • L&T Midcap Fund: Rs 2,000
  • Motilal Oswal Multicap 35 Fund: Rs 2,000
  • Aditya Birla Sun Life Small Cap Fund: Rs 2,000 

 - Darshan Kataria

Congratulations on starting out so early.

Since we have no idea about your other investments, we are assuming you have allocated between equity and debt. When building a portfolio, it is wise to make an allocation across asset classes depending upon your risk and return objectives and investment time horizon.

With regards to equity, we request you to temper your overall return expectation. Traditionally Indian equity markets have delivered gross returns of 12-15% over the long term, which to our mind is a highly healthy rate of return. Anything above that would be unrealistic.

The funds you have chosen are all well-managed strategies with differing mandates. Kotak Standard Multicap and Motilal Oswal Multicap 35 mix into a large, mid and small cap stocks. L&T Mid cap invests largely into mid-cap stocks and Aditya Birla Sun Life Small Cap largely into small cap stocks. The risk associated with equity investing increases as we go down the capitalization ladder, especially in the short term.

I am investing for the long term; as in 10 to 12 years.

  • Mirae Asset – Rs 9,000
  • SBI Small Cap – Rs 5,000
  • L&T Emerging Business Fund – Rs 5,000
  • IDFC Tax – Rs 2,000
  • Aditya Birla 96 – Rs 2,000

I want to invest Rs 5,000 more. Could you please suggest good funds?

- Arun

Your long-term perspective when it comes to equity is excellent. And very important too.

The funds you have named are fairly well managed strategies from different fund categories across fund houses.

We suggest you go with a large-cap fund.

I have a 15-year time frame. These are the funds I invest in.

  • Motilal Oswal Multicap 35: Rs 6,000
  • Mirae Asset Emerging Bluechip Rs: 4,000
  • Axis Tax Saver: Rs 7,500
- Prem

Excellent long-term perspective.

Your portfolio comprises of some well managed funds. We also see there is fair bit of diversity in the fund styles – Motilal Oswal Multicap 35 (multi-cap with a concentrated portofolio), Mirae Emering Bluechip (Large & Mid-cap fund with a mid-cap bias) and Axis Long Term Equity (multi-cap with a large-cap bias). You can continue to stay invested in these funds.

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