Why Mutual
Fund portfolio now require restructure …. It is just because of below 3 reasons
- 1. Introduction of LTCG
- 2. Categorization of Mutual Fund by SEBI
- 3. Introduction of TRI (Total Return Index)
Introduction of LTCG :
That
means frequent buy and sell of funds will put you in the trap of taxation and
on a long run basis your return will reduce. Because each time you redeem you
will pay tax and while reinvesting you need to pay upfront expense (applicable
in both regular and in direct).
Also
we need to stop running behind those funds which are giving best return in
recent times by churning your portfolio again and again may become fatal.
So
now your responsibility becomes more to choose right fund and stick to it for a
lengthy duration.
Categorization of Mutual
Fund by SEBI :
After
new guideline from SEBI , a large cap should only consist of large cap (no mid
and small cap)
Similarly
small cap should contain small cap fund (no large and mid cap)
Same
with mid cap and multi-cap and hybrid fund.
Now
fund manager has been restricted to choose a limited universe of stocks unlike
before.
So
historical fund return of the funds as of now may not be repeated going forward
…
Suppose
you bought a fund that earlier was a multi-cap fund. But after the
re-categorization, it has become a mid-cap fund. So going forward, about 60% of
your money would be invested in mid-caps
Introduction of TRI (Total
Return Index):
TRI
will consider both price movement and dividend payout going forward which will
definitely throw a challenge to fund managers because now due to calculation of
dividend the TRI return will be1-2 percent more . This means that the fund will
have to work harder to beat the extra 150 basis points per annum.
So
categorization and TRI will make an heavy impact on investor considering for
longer investment.
We
can now start expecting that the investment industry will start embracing
tougher benchmarks to evaluate their product’s performance. Over time, from two
asset managers, this number will start spreading to many more asset managers,
if not all. With TRI in mind, smarter products with lower costs can take shape
in the form of exchange traded funds (ETFs). Many of these funds will find
meaningful allocations in our financial journey, especially those whose
milestones are many years farther .
This
also means that there is a case for investing in index funds for a subset of
investors now. Do you realize why this might make sense for you too?
It’s a thought
provoking process, Isn’t it!!
I have restructured
my mutual fund portfolio, Have you done this exercise, have you????
If you still don’t
understand what’s app me or drop me for note at smartfinanceplanning@gmail.com
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