If investors have excessive allocation towards small- and mid-cap funds, it may be a good time for some reallocation towards large-cap funds. Rajeev Thakkar, chief investment officer, PPFAS Mutual Fund, in an interview to Saikat Neogi, advises investors to stick with diversified equity funds rather than trying to pick one or two sectors or themes for investments in the equity space. Excerpts:
In the new year, what should be the equity investing strategy for retail investors?
The asset allocation of every investor depends on factors such as age, nature of income, the income – expenditure and assets – liabilities profile, risk tolerance, goals and so on. There is no need to tinker with the asset allocation and they should continue to allocate to equities as per their financial plan. Within their equity allocation, if the investors are investing in market-cap specific funds (for example, small-cap funds, mid-cap funds and so on) it is important to look at the weightages of the allocation. If the investors have excessive allocation towards small- and mid-cap funds, it may be a good time for some reallocation towards large-cap funds.
Will investing in hybrid funds offer a balanced approach?
With the change in the taxation norms for debt funds, investing in hybrid funds is an attractive proposition, especially for investors in the higher tax brackets. Investing in debt funds results in taxation at the marginal income tax rate which, after including surcharge, can be as high as 39%. Investing in funds like arbitrage funds, multi-asset funds, equity savings funds or dynamic assets allocation funds can result in lower taxation if held for a period of one or two years as required under the tax laws. Here, the lower equity allocation reduces the risk of a downside and can give potentially better returns as compared to debt instruments.
What are the pockets of opportunities that investors can find now to invest for a long time?
My recommendation would be to stick with diversified equity funds rather than trying to pick one or two sectors or themes for investments in the equity space. In terms of valuations, the consumption and startup space in India looks over heated. Consumption oriented sectors like organised retail, FMCG, quick commerce, food delivery and so on look significantly overvalued. On the other hand,
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