Are you a super-organized packer or someone who leaves it for the last minute?
Well, a lot of people like to keep a checklist handy to avoid missing out on anything on the trip.
Usually, the list is divided into 3 categories: Essentials, Should-haves and Maybes.
This helps declutter your mind and enjoy a relaxing holiday.
However, if you think carefully about it, you can apply this approach to your investing style too.
A checklist can help you cover all the important bases required in your investing journey.
This way, we feel secure about our investment choices and do not get FOMO about not investing in a particular mutual fund.
Just for your ease, here’s an equity mutual fund checklist for you.
So, let’s dig in.
Essentials
The big 3 forms the “Essentials” of your checklist i.e. Large-Cap, Mid-Cap and Small-Cap.
Large-Cap
Actively managed large-cap funds might not be the right choice.
It’s because their expense ratios are pretty high and they have outperformed the index only once or twice in the past two decades.
Instead, index funds are much better as they provide you with exposure to large-cap companies and their expense ratios are lower.
Mid-Cap and Small-Cap
They’re essential for your long-term goals.
Small-cap and mid-cap funds have delivered the best returns across other equity categories in the past 10 years.
However, if you are unable to find a good actively managed fund, then another approach can be to simply choose a Nifty Smallcap 250 index fund or a Nifty Midcap 150 index fund.
These are also types of index funds which will help you grow your money as per the market’s tide.
Should Haves
3 major funds in this category are: ELSS Funds, Flexi-Cap & Multi-Cap.
Flexi-Cap and Multi-Cap
They are pretty similar and great options providing you decent exposure to large, small and mid-cap.
The trick here is to invest as per your asset allocation and your risk appetite.
If you are comfortable with the volatility associated with a 50% allocation to mid- and small-cap stocks, choose a multi-cap fund.
Otherwise, opt for a flexi-cap fund, which typically maintains a lower average allocation of 25-30% to such stocks.
Read More: Flexi-Cap Fund vs Multi-Cap Funds: Which is Better for You?
ELSS Funds
ELSS Funds are a great option for your portfolio because they have double benefits.
Not only because they are a great tax-saving option but also because they have delivered amazing returns in the long term.
Maybes
There are quite a few that fall in this category: Sectoral/Thematic, Value, Contra etc.
Sectoral/Thematic
Various funds like Tata Digital and SBI PSU have delivered great returns but they aren’t for everyone.
Why?
They are too risky. In case a sector gets hit badly, these funds would be affected severely.
Moreover, a lot of them require an accurate entry and exit strategy. Hence, unless your analysis is great, it’s better to steer clear of them.
Value Funds
While they have been performing well in recent times, about 85% of value funds have underperformed their benchmarks in the past 5 years.
Certainly, they are a bit tricky considering they are too reliant on the fund manager’s ability to pick the undervalued stock.
Contra Funds
These equity mutual funds invest against current market trends and sentiments. Undoubtedly, they are highly risky.
Funds such as the SBI Contra Fund have caught everyone’s attention as it outperformed the index by a whopping 14% last year.
But it doesn’t tell the true picture.
If you check their rolling returns, this outperformance is not very evident.
Contra funds can be great if you are okay with taking big risks otherwise, they aren’t the right choice for you.
Conclusion
Now, the question is- should you invest in all?
It depends on your asset allocation.
As long as you have covered the Essentials and Should Haves, the Maybes can be avoided unless you have a great risk appetite.
If you are someone with great risk-taking ability, then you can check out funds in sectoral, thematic, and contra domains.
Disclaimer: Investing in mutual funds is a personal choice. Kindly make sure to look at other parameters before investing. The 1% Club News team recommends consulting a SEBI-registered investment advisor.
