Why our Mutual Fund Portfolio needs restructure now ?

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