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POSTED BY ON April 10, 2012 3:42 pm COMMENTS (9)
I am new to Mutual Funds and trying to build a portfolio for myself.
I understand that “Equity: Large Cap” is comparatively less riskier when compared to Mid-Cap/Small-Cap funds.
Q1. So, if one is building a portflio with moderate risk appetite and looking for 70:30 ratio of risk vs non-risk, then whether a large cap fund should come under the “risk” portion of the portfolio or in the non-riskier section of it.
I am not sure, but, I feel the answer is that, since it’s an equity fund, it should come under 70% part of the portfolio.
Q2. Considering it as a part of 70% of your portfolio, how much percentage of it should a large cap holding is advisable?
Q3. Is it advisable to NOT to have a large cap in folio considering I am okay taking 70% of complete risk and rest 30% in PPF/FD etc
Q4. Also, I have read that The ‘Equity: Large Cap’ category accounts for around 10 per cent of the assets of all equity funds and ranks fifth when compared with the other equity categories (Large & Mid Cap, Multi Cap, Mid & Small Cap, Tax Planning). May I know that why investors stay away from large cap finds as compared to others?
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The gist of the article was that the large cap funds aren’t popular among investors. May I have your take on it?
Dear Kapil, can you provide some background of your conclusions/queries? I’m asking to understand your thought process.
A general answer has already been provided by dear Ramesh hence not repeating the same.
Thanks
Ashal
Ashal,
I don’t have any conclusions, only queries 🙂
I was actually going through certain article in the mint, which was discussing about account size in terms of assets for large cap funds. They said, they only account for 10% per cent of the assets of all equity funds and ranks fifth when compared with the other equity categories.
Hence, the question.
Thanks. Kapil.
Dear Kapil, can you post the link for that article?
Thanks
Ashal
Ashal, Inspite of my best efforts, I am not able to find the link.
Dear Kapil, as the info provided in the article is not available to us, how can we discuss any more?
Thanks
Ashal
– All asset classes are Risky. Some are more (read equity, gold, real estate) while others are less risky (read FD, PPF, debt instruments, cash).
– Equity oriented parts are more risky assets since you cannot quantify the return – it can more or less than an arbitrary value which either way tells us that it cannot be predicted.
Hence, answer to Q1 is you should keep it in “Risky” (or more correctly- More Risky).
The subdivision of stocks into Giant, Large, Mid, Small, Micro is entirely arbitrary and different people have different definitions (there is no standardisation here, or atleast I do not know). Remember, if a large cap loses half its value, does it make it midcap?
Also, any sufficiently diversified fund will have stocks in all major caps. While restricted mandate funds will restrict the universe of stock selection.
Q2 and Q3 are entirely upto you. Either you can select funds which have restricted mandate, and make up your portfolio to reflect that. In that case, you will select and periodically allocate money according to your personal analysis, which type of fund will get how much money.
The other option is to have an unrestricted mandate type of funds (truly diversified funds) and let the fund manager decide the allocation pattern and subsequent churning.
Q4. Who cares what others are thinking. 😉
Hope this helps you.
Ramesh
Ramesh,
Thanks for your valuable inputs.
I always used to think that the cap size is defined as per the revenue of the company.
For Q2 and Q3, I was hoping to get an opinion that an advisor would give to a 30 yr old whose risk appetite is 70:30 equity.
Regarding Q4, I was reading some articles in the financial magazines, and hence the question. It will be good if you share your opinion. Are you having any large cap fund in your portfolio? And what led to the decision?
You can either choose to do the little headache for yourself in this manner:
1. Get Franklin Blue Chip Equity fund – say 50% of your 70 equity part (=35% total)
2. IDFC Premier Equity / DSP Small and Mid Cap – rest 50%.
Do SIPs in them and keep some money in hand. Every quarter or half-yearly, do a lumpsum into the fund which is LESSER than the other and make the total division to 50:50. That way, you will by buying more of the style of fund which has underperformed.
Second Option:
Choose two multicap/flexicap funds. In my opinion choose any of the two: Franklin Prima Plus / Quantum Long term equity / DSP Equity / HDFC Equity. Just do SIPs in them.
I would choose Franklin Blue Chip fund, if I wanted a largecap fund (I do not have it, since I believe in multicap funds, and let the fund manager decide what he wants to do).
Ramesh