I have been investing in a large-cap equity fund SIP of Rs 10,000 since June 2017. I have invested `4.6 lakh and the current value is Rs 6.19 lakh. Is the return generated fine to continue with the fund for another five years?
Based on your invested monthly corpus and the current value, the fund has generated an annualised return of 14.50% (June 01, 2017 till May 26, 2021) which features in the top quartile among the large-cap peers for the said period. The fund has outperformed most of its peers (average is 10.84%) and has also outperformed the large-cap benchmark (S&P BSE 100 TR Index) which delivered 13.33% during this period.
Hence, you can continue to remain invested in your fund. Always evaluate a fund in context of overall port-folio, with respect to the diversification it offers in terms of investment style (growth/value/blend), exposure to different market cap segments (large /mid/small-caps) and geography (domestic/international markets). You should evaluate the performance of the funds in your portfolio vis-à-vis that of their respective category peers. If a fund has been delivering below-average performance consistently over long periods, you may switch to a more consistent one.
I want to invest in a multi-cap fund for a horizon of three years. What kind of returns can I expect?
—R K Dave
Though equity is more volatile than most asset classes with even possibility of a capital loss over the short-term, the risk of capital loss diminishes as holding period increases. Over long horizons (10+ years), equities can deliver around 4-5% over the long-run inflation rate. Valuations play a defining role while entering any asset class / security. Lower (cheaper) valuations reduce the risk of drawdowns and improve upside potential. However, investors should follow an asset allocation based approach for portfolio construction, as it is one of the key determinants of the portfolio’s performance.
Ideally one should invest into equities for a horizon of at least 5 years. Given your horizon is very short (3 years), you should restrict your equity allocation in line with your risk appetite. As equity markets are highly volatile, stagger your equity allocation over next 1-4 months to benefit in case of any short-term correction in the markets.
The writer is director, Investment Advisory, Morningstar Investment Adviser (India). Send your queries to firstname.lastname@example.org