Your Queries (Mutual Funds): Concentration risk? Diversify your SIP across 2-3 funds

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© Provided by The Financial Express However, the equity exposure in such funds is restricted to a much narrower range relative to dynamic asset allocation funds.

As I want to invest Rs 20,000 every month in a systematic investment plan (SIP), should I invest in three SIP accounts to diversify the portfolio?

—Raminder Singh

You would need to register the SIPs separately for investing into different funds. It is advisable to diversify investments across 2-3 funds to mitigate concentration to a particular AMC or fund manager’s style/bets.

Is there any mutual fund scheme where the money automatically moves to equity when the markets rise and moves to debt for some time when markets fall?

—Jitendra Kumar

‘Dynamic Asset Allocation / Balanced Advantage funds’ allow a fund manager the flexibility to move between equity and fixed income based on their perception of market valuations. Most schemes in this category have the flexibility to maintain equity exposure in the range of 65 to 100% in equities (rest in fixed-income), while a few schemes have the flexibility to move out entirely from equities into fixed-income.

 

However, to maintain the favourable equity taxation, fund managers do not go below 65% in equities. Typically such funds invest a portion into equity arbitrage strategies which are market neutral in case the manager doesn’t have a positive market view or due to valuations to meet the 65% requirement.

 ‘Hybrid funds’ is another class

of funds which can take asset allocation calls based on their valuation expectations. However, the equity exposure in such funds is restricted to a much narrower range relative to dynamic asset allocation funds.

How can I withdraw money from my SIP as I am facing a cash crunch now?

—R S Joshi

You can withdraw your investments periodically unless they are under the lock-in period. You can withdraw via the SWP (systematic withdrawal plan) route by redeeming a fixed amount at a given frequency. You may also withdraw a lumpsum amount via a redemption request. Funds usually have minimum withdrawal amounts specified in their disclosure documents. Be sure that the units being withdrawn are not under the exit load period.

The writer is director, Investment Advisory, Morningstar Investment Adviser (India). Send your queries to fepersonalfinance@expressindia.com

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