 "Readers’ Corner: Mutual Fund")
I have an ongoing systematic investment plan (SIP). I want to increase the contribution towards the funds for a limited time. Do fund houses have such a facility? What should I do?
SIP is a disciplined mode of investment in mutual funds. Increasing your SIP contribution with a corresponding rise in your income makes your investment much more effective. It not only helps in preserving the purchasing power of money but also may aid in reaching your goal earlier than planned. You can opt for an incremental SIP or top-up facility at the start of your investment tenure, by filling the specific form. However, in case, you have not opted for top-up SIP plan, you can do so by enrolling a fresh SIP with a top-up facility. A top-up facility enables the investor to increase the SIP instalment by a fixed amount for a pre-defined interval. However, in case you want to reduce your SIP instalment in future, you will have to enrol a fresh SIP.
What is the benefit of benchmarking funds against total return index? Will funds be able to display the kind of outperformance they showed over the benchmark earlier?
Total Return Index (TRI) is computed after taking into account the dividend and interest payments on the index constituents over and above the price movement that form a part of (Price Return Index) PRI. For instance, the dividend yield for the Nifty 50 index has ranged between 0.9 per cent and 1.64 per cent since April 2010, which typically means that the Nifty PRI would not have reflected these gains, as it excludes dividend yield. The TRI reflects all such gains. We may, hence, see the relative out-performance narrow down between the fund’s performance and the benchmark’s performance. The overall fund performance, however, would largely depend on the fund manager’s expertise.
I have an SIP mandate with a mutual fund for a year. I am going on an unpaid sabbatical of three months. As I won’t be able to invest for the remaining tenure, I want to stop the mandate. Also, I won’t have money in the salary account to which the investments are linked. If the fund sends a request for the money and it bounces, my bank will levy a penalty.
In a situation like this, one may pause the SIP for a specific period by filling the required mandate with the fund house. A pause facility temporarily halts fresh SIP inflows to your investment and resumes the same automatically at the end of the pause tenure. In case, where the fund house does not offer a pause SIP facility, you can use the stop SIP facility and then re-start a new SIP in the same fund once your regular income flow starts.
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For a period of five to seven years, what is riskier – a thematic fund or mid- and small-cap fund?
A thematic fund invests in stocks based on a particular theme. Take, for instance, the ESG (Environmental, Social and Governance) theme fund. It will have its investment spread across sectors and market capitalisation but restricted to a list of stocks which adhere to ESG criteria. A mid- and small-cap fund is a diversified fund in which investments are based on the market capitalisation without bias towards any sector. Ideally, an investor who wishes to invest in equities, should first invest in a large-cap equity fund and then consider investments in multi-cap or a mid- or small-cap fund, before thinking of investing in a thematic or sectoral fund. The risk-o-meter barometer too suggests that a thematic fund is considered as a high-risk category investment compared to a mid- or small-cap fund. Having said that, a thematic fund’s
performance can be cyclical, whereas a mid- or small-cap fund’s performance may be in tandem with the broader market. At times you may see a divergence between the two. You need to be well versed with the market conditions to consider investing in a thematic fund.
The writer is MD and CEO, SBI Mutual Fund. The views expressed are the expert’s own. Send your queries to yourmoney@bsmail.in.
