A reader asks, “Now we have a retirement corpus of over Rs. Ten Crores. Whereas we agree that having fewer funds is extra manageable, we’re nervous about stacking one cr in every fund, debt or fairness. Do you assume that worry is unfounded?”
The primary objective in portfolio administration is a peaceable sleep. So so long as your actions are appropriate and cheap on your objectives, you need to do what you might be comfy with. Additionally, see: Is one thing improper if I maintain 25 mutual funds?
So if holding one Rs. One Crore in a single fund doesn’t sit nicely with you, don’t. There isn’t any hurt in holding 20 funds with Rs. 50 lakh every or 40 funds with Rs. 25 lakhs every throughout totally different AMCs. It’s a private desire, simply that your partner or associate ought to learn about all holdings. All holdings ought to have applicable second holders (some your partner, some your kids and many others., as per your want), and all holdings ought to have nominations. Plus, it could be finest to jot down a will and guarantee involved events are conscious of this.
Related sources for these steps:
With that out of the way in which, allow us to handle the worry itself. Is that this worry rational? There are two facets to this. (1) Focus danger and (2) Scheme-specific or AMC-specific danger.
Focus danger is when an excessive amount of cash is put into the identical scheme, affecting portfolio efficiency. However Rs. 1 Crore out of Rs. 10 Crore is just 10%, which will not be categorized as concentrated publicity by most buyers (particularly in the event that they know solely concerning the 10% publicity and never the worth). Then once more, it’s a private definition of an excessive amount of publicity. So focus danger is a rational worry.
AMC or scheme danger may be two-fold. One is as a result of unconventional decisions made by the fund supervisor and the ensuing penalties. For instance, the redemption stress confronted by the Franklin Schemes. It may be argued that it is usually a part of focus danger, however I would favor to differentiate regular or day-to-day market danger (on account of an excessive amount of publicity) and anomalies.
The opposite is as a result of “security of the capital”. Or, in different phrases, the worry that somebody will take our cash and run away or the AMC itself would fail (like a financial institution).
A mutual fund in India is ready up like a belief. A belief is an association involving three events (not like a financial institution): the unitholder (or investor), the mutual fund firm (AMC) and the mutual fund trustee.
The proprietor (sponsor) of the mutual fund creates a board of trustees answerable for overseeing the fund’s operations. They should guarantee compliance with SEBI rules. A custodian registered with SEBI holds the belongings within the fund and is answerable to the trustees.
Two-thirds of the trustee board should not be a part of the sponsor firm. This additionally applies to half of the AMC administrators. This association makes it extraordinarily tough for the mutual fund to run away with unitholder cash or violate SEBI rules.
The query of a mutual fund not having sufficient cash to pay the unitholder doesn’t come up because the features or losses made by the fund supervisor are straight handed on to the mutual fund. Additionally, there’s month-to-month portfolio disclosure and periodic audits, which need to be submitted to SEBI.
Due to this fact, a mutual fund can not fail like a financial institution. It may possibly, nonetheless, get into hassle in different methods.
For instance, SEBI doesn’t straight management the selection of funding. These may be inside subsidiaries of the sponsor and subsequently contain a battle of curiosity. Additionally, as just lately witnessed within the Zee-Essel bond case, fund homes may agree with bond issuers about not devaluing dangerous bonds: Eroding Belief: Are mutual funds actually market-linked merchandise? SEBI then issued a show-cause discover on this regard.
In precept, a mutual fund can deviate from SEBI rules and even commit fraud. So AMC or scheme-specific danger can also be a rational worry.
Due to this fact, it is sensible for buyers to unfold their investments amongst totally different AMCs and funds. Nevertheless, there is no such thing as a proper or a improper variety of AMCs or funds. It’s completely as much as the investor. So choose a quantity that will provide you with peace and keep it up. Don’t second guess and ask others. That’s when the confusion begins.
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