 "Stock market")
Expectations of a stable central government and anticipated policy reforms are driving optimism among investment experts. This bullish outlook translates to a new mutual fund investment strategy for investors, which prioritizes large-cap stocks and sectors aligned with government focus. MIRA, an investment management platform, believes the Nifty index could reach 50,000 in the next five years, presenting significant opportunities for investors.
"Our current strategy for achieving better returns on mutual fund investments is the result of careful consideration. We have identified that large caps are undervalued by about 3%—3 ½ %, and thus, we will allocate a substantial portion of our investment in this area. This is not to say that mid- and small caps are not viable, but their long-term growth potential may be more limited," said Anand K Rathi, Co-founder of Mira Money.
Large Caps: Undervalued Gems with High Returns
The proposed strategy emphasizes large-cap stocks, currently undervalued by 3 to 3.5 per cent. This presents an attractive entry point with the potential for high returns. While mid- and small-cap stocks are acknowledged, their long-term growth potential is considered less promising in the current environment.
Diversification Through a Satellite Portfolio
The strategy also incorporates a "satellite portfolio" for aggressive investors. This diversified portfolio will focus on sectors prioritized by the government, such as infrastructure and manufacturing. Diversification is crucial to mitigate risk and ensure investment security.
Investment Allocation Breakdown: A 50/20/30 Approach
For every Rs. 100 invested, the strategy recommends allocating:
50%: Large-cap stocks – considered undervalued and poised for higher returns.
20%: Mid- and small-cap stocks – offer some growth potential, but with a cautious allocation.
30%: Sector Funds – specifically targeting the banking and financial services sector, which has underperformed despite strong fundamentals. This diversification aims to capitalize on the sector's potential while hedging against broader market fluctuations.
"If you give me 100 rupees today, I’ll invest approximately 50 percent of the money in large caps and the remaining 20 percent in mid- and small caps. The remaining 30 percent can be invested in a sector fund because banking as a sector hasn't contributed enough to the market despite performing well; the net and non-performing assets have been at a low on the sector's balance sheet, which is very clear," said Rathi.
"If you give me 100 rupees today, I’ll invest approximately 50 percent of the money in large caps and the remaining 20 percent in mid- and small caps. The remaining 30 percent can be invested in a sector fund because banking as a sector hasn't contributed enough to the market despite performing well; the net and non-performing assets have been at a low on the sector's balance sheet, which is very clear," said Rathi.
Top 5 Mutual Fund picks:
The strategy proposes five specific mutual funds for different investment segments:
ICICI Prudential Blue-Chip Fund (40%): This fund focuses on large-cap blue-chip companies with strong track records and growth potential.
HDFC Mid Cap Opportunities Fund (20%): This fund provides exposure to mid-cap opportunities with the potential for high returns, but also carries a higher risk profile.
Parag Parikh FlexiCap Fund (15%): This fund offers a flexible investment approach across market capitalization, allowing for dynamic adjustments based on market conditions.
Quant FlexiCap Fund (15%): This fund utilizes a quantitative approach to invest in companies across market capitalizations, potentially achieving optimal returns based on data analysis.
Tata Banking and Financial Services Fund (10%): This sector-specific fund offers targeted exposure to the banking and financial services sector, aiming to capitalize on its potential for growth despite recent underperformance.
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