Should I shift investment to conservative hybrid mutual fund and then start STP to flexi-cap scheme?

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I had invested a lump sum in PPFAS Liquid Fund, from which the money shifts to a flexi-cap fund through a STP. The entire money will be transferred in 30 instalments. However, I’m worried about the opportunity cost of not keeping money in the debt fund. Should I shift my funds to a conservative hybrid fund and then start an STP to a flexi-cap or should I let it be the way it is?

Rushabh Desai, Founder, Rupee With Rushabh Investment Services replies: Conservative hybrid funds invest 10-25% in equity instruments. As per historical data, on a rolling returns basis this category has seen negative returns. The maturity profile of the debt component here may not remain constant and may not match your horizon. Also, these funds can venture into low credit instruments which can be risky. This category can face volatility and impact your STP amount. The minimum horizon for this category should be around 3-5 years. Keeping these points in mind I would not suggest you shift your funds into this category. Since your STP time frame is short and your main goal is to invest in equities, opportunity cost on the debt side should not be your primary concern. On the other hand, since you have lumpsum money in a liquid fund you can think of deploying this corpus in decent correction pockets over the 30-month period and shorten your STP time frame. This way you will be able to generate higher returns from equities in the long run. If you don’t know how and when to time the equity markets, you can stick with systematically investing in equities via STP route. Since we will see a rate hike cycle soon and it will impact the returns of many debt funds, I suggest you stick with liquid, low duration and arbitrage funds. Out of your 30 monthly STP instalments you can leave the corpus for the initial 15 months in your liquid fund and the rest you can park in high credit quality low duration funds and arbitrage funds. Towards the end of your initial 15 monthly STP installment period you can redeem and invest back in your current liquid fund. This way you can get slightly higher returns than the liquid category. Please keep in mind the execution can be tricky. If you don’t understand and can’t manage this then staying put in your liquid fund will be more convenient and less risky.

I am a retired person with a monthly income of Rs 50,000. After expenses, I invest Rs 10,000 through SIP in Mirae Asset Large Cap Fund. Besides, I have a small holding of shares worth Rs 1 lakh in HUL and Asian Paints. Now, I can spare another Rs 5,000 per month for investing. Would you advise me to invest in shares directly or add it to my existing SIP?

Prableen Bajpai, Founder FinFix® Research & Analytics, replies: There is no information about your risk appetite, time horizon, or other investments in your portfolio. Compared to buying direct stocks, mutual funds are a more convenient and hassle-free vehicle to hold a diversified pool of stocks. Although the choice of the scheme should be ideally decided after reviewing your overall portfolio, based on the scheme and stocks mentioned and the fact that you are a retiree, the additional investment of Rs 5,000 per month can be done in a scheme from the aggressive hybrid category. As per Sebi’s guidelines, funds from the aggressive hybrid category need to invest around 65-80% of the corpus in equities while 20-35% is held in debt and money market instruments. These funds regularly rebalance their allocations within these limits based on market conditions and can contain the downside risk to some extent during sharp market corrections. The category is suitable for an investment horizon of five years and more. However, if you are looking at a pure equity investment, you can simply increase your allocation in the existing large-cap fund.

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