A retail investor with a long term investment horizon should ideally park 20% of his funds in a midcap and good small cap mutual fund. However, higher allocation should be done in large cap funds, advises Pankaj Mathpal, Managing Director, Optima Money Managers.
Below is an edited transcript of his interview. Also watch the accompanying video.
Q: An investor wants to invest Rs 4000 per month by way of SIP in mutual funds. At present, he is investing Rs 2000 in HDFC Midcap Opportunities Fund and Reliance Small Cap Fund. He is planning to add some more money. He is also willing to invest Rs 25000 in direct equity stock market. What be a better option � mutual fund or direct equity stock market?
A: The investor is already investing in mutual fund - a midcap and a small cap. However, a large cap fund is missing in his portfolio. So if he wants to invest Rs 4000 per month, he can invest Rs 2000 in a large cap fund like DSP BlackRock Top 100 Equity Fund and Rs 2000 per month in a gold saving fund like Reliance Gold Savings Fund.
In addition, he wants to invest lump sum amount in direct equity. If he has good knowledge about equity then only he should invest otherwise I�ll again suggest using the MF route. If he invests indirectly in equity; that is a better choice for him. Since he is the only earning member, he should also have a term insurance in his portfolio with adequate sum assured.
Q: What would you year ideal list of MFs that such investors should look at?
A: Ideally, if you are a retail investor and your investment horizon is very long, you can park 20% of your funds in midcap or good small cap MFs but higher percentage allocation should be in large cap.
Therefore, I suggested the investor to add large cap fund. Especially for a short term horizon, I will definitely advise investors to remain away from small cap funds.
Q: An investor can invest Rs 5000 per month. How should he allocate his money between funds and between asset classes?
A: If the investor�s time horizon is long, I will suggest Rs 2000 in DSP BlackRock Top 100 Equity Fund which is a large cap fund, Rs 2000 per month he can invest in Reliance Gold Saving Fund and Rs 1000 per month in HDFC Midcap Opportunities Fund. In this way, he will have exposure to large, midcap, equity fund as well as to gold saving fund.
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