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Zero in on your optimum equity investment strategy wisely
Published On , 7 May 2018 By TOI
Every investor needs to have in place an investment strategy that would guide his/her investment decisions to reach their individual Goals based on their risk taking abilities. Every investment strategy encompasses an asset allocation strategy, that is of all the available assets, in which an investor should put his/her money in. The asset classes could be Equity, Debt, gold, commodities, real estate, art etc. For each of the assets classes too there would be strategies to invest in and given the nature of the asset class, each would be very different from each other.
In case of Equity investments, the ideal investment strategy for an investor should be a mix of large cap funds, midcap funds, small cap funds and multi- cap funds. In addition there could be schemes that follow styles like value and growth, financial advisors and planners say. And in case the risk profile of the investor permits, the investor could also invest in sectoral funds, thematic funds, balanced funds etc. They say that depending on the risk taking ability of the investor, there should be an optimum balance between various types of funds.
Under Sebi’s new fund categorisation rules, large cap funds are those mutual fund schemes which invest predominantly in companies that are ranked among the top 100 by market capitalisation. Likewise a midcap fund is a schemes that invests predominantly in companies which are ranked between 101st and 250th by market capitalisation while small cap funds are those which invest in companies that ranked outside of the companies ranked 250th by full market capitalisation.
According to Sebi, a multi-cap fund is an open ended Equity scheme that invests across large cap, mid cap and small cap stocks. Such funds should have at least 65% of its corpus invested in Equity and Equity-related instruments. The regulator also defines a value fund as the one that follows a value investment strategy, meaning it should invest in companies with hidden value which could be the winners of tomorrow. These funds also should have at least 65% of its corpus invested in Equity and Equity- related instruments. A growth style is defined as one that targets companies with growth rates above the industry- average. According to fund industry professionals, the ideal investment strategy also calls for an investor to select the scheme and also the option which could be the best for his/her fund requirement in future. Such options could be either to invest a lump sum amount in a fund or to take the systematic investment route.
According to Value Research, the highest compounded annual return in a large cap fund over a five-year SIP has been 21.2% while the lowest has been just about 10%. In comparison, the average annual return over a five-year period through a lump sum investment has been 15.4%. In case of mid-cap funds, the return range has been between 29.7% and 12.5% while the average annual return over a five-year period through a lump sum investment has been 25.6%. In case of small cap funds, the return range has been between 37% and 26.3%. In comparison, the average annual return over a five-year period through a lump sum investment has been 32.2%. And in case of multi-cap funds, the return range has been between 25.2% and 9%, while the average annual return over a five-year period through a lump sum investment has been 19.5%.
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