What should be the core fund for your portfolio | Why does it matter? | How to pick it?
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- Опубликовано: 21 июл 2024
- The core-satellite approach is one of the most popular investment strategies. In it, you have a core fund (or a couple of them) and allocate a major part of your capital to them. So, the core fund is the main fund in your portfolio. Then you can add other funds in your satellite portfolio to boost your returns or diversify better.
The core-satellite approach has many advantages, which we have discussed in the video. Next, we explore what should be the core fund for your portfolio. Because equity funds have the highest return potential and are most suitable for those in the accumulation phase, we started looking into the equity categories.
In our view, the core fund must fulfil two criteria: (1) it should give good returns and stability and (2) it should be reasonably free to invest anywhere. The second criterion is important because restricted investment mandates can affect diversification and increase risk. To ensure stability, we took those equity categories which have a large-cap allocation of at least 50%.
The equity categories that got disqualified due to the above criteria were mid-cap, small-cap, multi-cap, dividend yield, value/contra, sectoral/thematic. The categories that cleared the criteria included large-cap, large & mid-cap, flexi-cap, ELSS and focused funds.
We then compared the performance and the volatility of the five categories that cleared the criteria. Focused funds did best. Large & mid-cap funds showed higher return potential at a higher volatility. Flexi-cap funds were moderate on both risk and return. ELSS funds gave moderate returns but at a higher risk. Finally, large-cap funds gave the least returns but were able to contain volatility.
These were the findings and one can use these to build a portfolio. However, one should go beyond returns. Different categories of funds could be suitable for different investors based on their requirements. Even funds from more than one category can be clubbed depending on the requirement. We have given the suitability of each of the categories in this video.
Link to check portfolio overlap: www.advisorkhoj.com/mutual-fu...
Chapters
00:00 Introduction
00:34 The core fund for your portfolio
01:45 Why Does a Core Fund Matter for a Good Portfolio?
03:45 What categories can qualify as core funds?
07:25 Which is the best core fund category?
10:20 Picking the right core fund
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I'm starting a business and am about to be financially stable enough to start putting money into the market. My biggest question before I get started is: How do I know if the stock market is too high right now so should I wait for a downturn before investing? Or what type of stocks (ETF, Index Funds, Penny Stocks, High Yield Dividends, etc.) should I buy at different turns in the market?
was in a similar boat and have just recently stated regular deposits into Vanguard rather than a lump sum. If things start to look less volatile and I feel more confident I can top it up more then. The way I look at it is, with inflation I’m losing a chunk of cash every year I don’t invest and I think over the next few months seems a great opportunity to
Don't try to time the market. You will never start if you try to time the market. Just start right away and the averaging and compounding will do its duty. The best time to start investing is - Now. Period
Super Video! What I liked the most is you never took side to any fund house but given complete view. You could have added top 3 funds from each of the category as well. Thank you!
There's is no words to say about your analysis sir. You are opening many begineers eyes about mutual funds. You are the great tutor ❤
Excellent presentation and clarification amongst different Fund Options.
Thanks 🙏
Hello, glad to know you liked the video. Please take out time to share it with your friends and family also.
This is most critical and spot- on informative video ! 👏🏻 🎯
We are glad you found it useful. Do share it with your friends and family and help us reach more people.
This is vary helpful video. Thank you for all the effort
To ET Money Gentleman Speaker on Core fund formation for a larger portfolio Stability and higher potential :
Sir, your delivery if contents is good based on a sound research based on atomic structure in physical Chemistry. God Bless you. I appreciate it immensely as a Science graduate researcher and later an Engineer teacher, practitioner and researcher and now in my 80's. Love,
KKAGRAWAL
Nice information about investment in MFs thanks
Nice video and insightful topic 👍🏻
Hello, thanks for your encouraging words. Please share this video with others as well to help spread the word.
Very informative video for most of equity market interested folks. Suggest core and satellite funds combination for retirees who understands equity market. It would be of immense value.
Hello, we are happy to know that you liked the video. Please share it with others as well. Will pass on your request regarding core-satellite approach for retirees to our content team.
Thanks great video
Ironically, the most disqualified funds like mid caps and small caps are the only funds that can build massive corpus in the long run. Others cant even beat realtime inflation.
Exactly ❤
Hello, mid-cap and small-cap funds can be very volatile and hence may not be suited as core funds. For core funds, both returns and stability are crucial. However, you can add mid-cap and small-cap funds in your satellite portfolio to boost your returns. All the core funds that we have discussed in this video have the track record of beating inflation.
@@ETMONEYDoes VTI (US Total Stock) or Nasdaq 100 can be included in Core. Or should we be vary of the aggresiveness in Nasdaq and treat it as a satellite
Excellent Presentation 👏
Need video on return, volatility & stability of large cap fund if large cap considered as core fund
Wondering if category average of Large Cap funds in these graphs are a mix of Index and Active funds and would it make any difference to the graph if they are considered as a separate category
Hello, only active large-cap funds were considered.
Its only mid caps and small caps alone that can give returns above 15% p.a in a 10-15 year term
Hello, mid-cap and small-cap funds have a higher return profile than the core funds we have discussed in this video. However, they can be also more volatile. Hence, we didn't consider them as core funds. You can have mid-cap and small-cap funds in your satellite portfolio if doing so fits your requirements.
But what should be the ideal percentage allocation for the core funds in portoflio? Whats the minimum percentage holding threshold for a fund to qualify as a core fund?
80:20 or even 70:30 depending up on ypur comfort level.
Hello, your core fund(s) should be at least 50% of your portfolio. The rest could be satellite funds. For those who want to keep it simple, the entire 100% portfolio could be core funds only, with no satellite funds whatsoever.
Nice
Index funds can be a good alternative for portfolio core. Cheap and risk free.
Nothing is risk free
Hello, you are right. However, we suggest only Nifty 50 or Nifty 100 or Nifty 500 index funds as core funds, not mid-cap or small-cap index funds. A Nifty 50 fund can help limit volatility in your portfolio.
Ppfas flexi cap is my champion mutual fund with xirr of 22%
My core fund is UTI Nifty 50 Index Fund. It is 70% of my equity portfolio.
same
Same here
Hello, a Nifty 50 index fund as a core fund will help limit portfolio volatility while delivering decent returns. If that's your objective, you are on the right track.
Why in the rolling return category Multi Cap funds are not considered? Where would you place them?
Could a smart beta index fund should be the core fund
Nifty 50 is my core fund. Additional funds of midcap. Then some individual stocks
Hello, a Nifty 50 fund can very well be a core fund. It will help reduce volatility in your portfolio. Mid-cap funds can be satellite funds.
Multi cap had a correct allocation so it will give great diversification, so it will help us to give good return in longer term horizon.
Hello, you are right that multi-cap funds provide best diversification. However, their average allocation to large caps has stayed below 50% over the last 2 years, since this category was created. Hence, we had to drop this category as a core fund contender.
mult asset funds, as core portfolio ?
Hello sir...
I have mid n smallcap funds as satellite portfolio (50%)
Have one Flexicap fund (25%) as core portfolio...
For remaining 25 % should I go with nifty 50 index fund or large n midcap fund ??Thanks...
Index fund in my opinion..
How is this portfolio? please comment
1. Mirae asset tax saver
2. Sbi long-term equity
3. SBI small cap
4. Tata small cap
5. Kotak emerging fund
6. Parag Parikh Flexicap
Quant & DSP ELSS have been outperforming so many other fund categories.
Can you pleasr name one or two best Large&Mid cap funds.
Hello, unfortunately, we can't give you specific fund recommendations. However, you can use the Fund Report Card on the ET Money app and other features to pick good funds.
I am not able to wrap my head around on how focus funds are able to beat Nifty 50 ,but large cap funds are not able to beat .
Hello, active large-cap funds have underperformed the Nifty 50 for a long time. Large-cap funds must invest at least 80% of their corpus in large caps. On the other hand, focused funds have no such restrictions. They are like flexi-cap funds only but must invest in no more than 30 stocks. It's likely that this freedom to invest has enabled them to beat the Nifty 50 in terms of 3-year rolling returns.
In my portfolio 60% uti index fund 30% motilal oswal midcap 150 index fund 10% qunat small cap fund is it good combination for 5 years
45000 every month sip
3yr rolling return is itself biased towards some particular funds , you should have picked atleast 7 or 10 yr rolling return.
3yr is too short a period to be considered for equity investment
3 year was picked coz of SEBI mandate in 2017 which streamlined the various categories and made the schemes comparable. Hence investment period for this exercise starts in Jan 2018. Thus, in Aug 2023, you can't have 5,7,10 yr rolling returns. 3 yr (not even 4) is ideal for this short investment period to get atleast 30 data points for returns for a somewhat meaningful analysis.
By the way which funds are 3 yr rolling returns biased towards?
Hello, we understand that long-term data would have inspired more confidence. However, the reason we took 3-year rolling returns is that the fund recategorisation happened only in 2017-18. Many funds changed their mandates after that. Taking long-term data would have resulted in discrepancy.
Can we request another video for satellite funds ( the second fund other than the core fund ) ?
Hello, actually, the funds that were disqualified as core funds can be your satellite funds. So, the most likely options are mid-cap, small-cap, value/contra, multi-cap and dividend-yield funds. Even international funds can be satellite funds for the sake of diversification. We don't encourage investing in sectoral/thematic funds as they tend to have limited diversification.
@@ETMONEY Thank you very much for the reply 😊
What about Multi Asset fund?
Parag parikh flexi cap is my core fund in my portfolio
Hello, a flexi-cap fund is appropriate as the core fund, so you are on the right track.
1. Would've been great if % split between core and satellite is discussed
2. Why not quantify the selection by using Sharpe ratio = (Avg return - Risk free rate) / Std Deviation ? Whichever category gives the highest ratio will be selected? Esp helps those who are confused with all the pros and cons of various categories.
Hello, core funds should command a major part of your portfolio. You can decide their allocation based on your requirement. It can range from 50% to 100% of your portfolio. The rest could be satellite funds. Also, while analysing investments, it's better to go beyond quantitative metrics and take into account practical requirements. In investing, there is no one-size-fits-all approach and hence the investor should always consider what is appropriate for their portfolio and requirements.
If someone suggests you % of core vs satellite without knowing your goals, time horizon and risk appetite, stay away from such persons as it's immature to make such suggestions without adequate knowledge.
Even when you use Sharpe ratio or any other parameter to rate the categories, it would be a useless exercise.
Every portfolio is unique. The best fund or funds at the core depend on many factors, including what are your preferred schemes for satellite portfolio.
@@ETMONEYSounds good. But (a) how many funds in the core portfolio,? Can one consider putting an entire core portfolio in one single active fund? If not, what is the maximum percent one should allocate to a core fund and how much for a satellite fund? Any difference? (I think, here, more than the risk profile of the investor, the risk of being in a single fund house matters?).
Hello, the core fund can be a single fund or a couple of funds. How much to allocate to a respective core fund or a satellite fund depends on you. Based on what you are comfortable with, you can take a call. You are right that funds in your portfolio should be from different AMCs so that you can limit the risk of management style.
@@ETMONEY Thank you for the immediate response. I know of many wealth advisors giving guidelines like:
Not more than 20-25% for an AMC, not more than 15-20% for a fund, all funds to be more than 3000 crores etc. Do you have any such suggestions ( I use the word suggestions) for designing the core and satellite funds? The idea being that a top heavy AMC can be a risk (I am giving Axis as a recent illustration or HDFC a few years back)?
Multiasset and midcap my king
Highly irrelevant as factoral index funds are best for core portfolio as they have higher return potential and lesserr volatility like alpha low volatility index, quality and value index , and momentum for better return....
You should have compare them as well .
What are factoral index funds?
Hello, thanks for your suggestion. Factor funds are a relatively new space and many factor indices don't have a corresponding fund. Many factor ETFs don't have sufficient volumes. Also, one of the requirements for core funds is that they should have minimal restrictions. Most factor indices have restrictions of some sort. Hence, we considered the Nifty 50 index in this analysis. However, based on your individual requirements, if a factor fund is capable of acting as a core fund, you can go for it.
Core funds are large
Large mid
Focused
Flexi only
I used to fail in Hindi. My favorite was Math and Science. Hindi was my 3rd language.
My core fund is axis long term equit fund. It is 70 p of my equity portfolio.l
Hello, Axis Long Term Equity is a tax-saving fund. Tax-saving funds are managed like flexi-cap funds, and help save tax and build wealth. They can very well be your core fund.
Too many noises . If ur strategies are working continue, should not change mid way based on videos. I have a large cap which beat the nifty50 handdown.
Hello, you are right. Our purpose is to bring to you various perspectives so that you can decide what's good for you and what isn't. There is no one-size-fits-all approach in investing. So, an investor must see what suits their requirements best. If you already have a portfolio that's working well for you, you can very well continue with it.
Vala vala nu pesitae irukinga.
😂
It's very useful... et money ❤
Flexicap became core fund if you invest for 25 years.
Quant small fund
Hello, in our view, a small-cap fund should not be your core fund as it can be highly volatile. Small-cap funds are better suited as satellite funds.
Bro how relatable
I got Social Science - 98, Hindi - 79, English - 92, Maths - 49, Science - 53. 😂
My core is ICICI PRUDENTIAL SHORT TERM DEBT FUND.
They recently increased their expense ratio 😮
A debt fund as a core fund is appropriate in a retiree's portfolio. If you are in the accumulation phase, you can consider having an equity fund as your core fund.
@ETMONEY thanks for the advice. I am also investing in midcap and small cap fund. And considering your suggestion, I will make midcap and small cap funds the core portfolio.
Hello@@learn4me6 Mid-cap and small-cap funds can be your satellite funds but not core funds as they can be very volatile. For core funds, the following categories are appropriate: Nifty 50/Sensex index funds, large & mid-cap funds, flexi-cap funds, focused funds and ELSS funds.
Axis small cap
Hello, in our view, a small-cap fund should not be your core fund as it can be highly volatile. Small-cap funds are better suited as satellite funds.
1 Large cap index
1 Flexi cap
1 Mid cap
1 Small cap
so you are buying the entire stock market of india
@@neeraj_damawhy not?
Hello, large-cap and flexi-cap funds can act as core funds and mid-cap and small-cap funds can act as satellite funds in a portfolio. In place of active large-cap funds, you can also consider Nifty 50 index funds.
What about debt funds?
Hello@@InnocentBoyV , in the accumulation phase, a debt fund is meant for short-term goals or as the debt component of your portfolio for asset allocation and rebalancing.
HDFC Small Cap
Hello, in our view, a small-cap fund should not be your core fund as it can be highly volatile. Small-cap funds are better suited as satellite funds.
Agli video hindi me banaya jay
Hello, we understand that you prefer Hindi to English. We do have a Hindi RUclips channel as well. It has equally insightful videos and many of the videos on this channel are posted on the Hindi channel after translation. Please visit www.youtube.com/@etmoneyhindi/videos.