Choosing the Right Fund for Young Investors: HBIC Magnum MultiCap vs HDFC Small Cap Fund
Investing is a vital step in building a secure future, and for a 20-year-old, deciding between different mutual fund options can be overwhelming. Given the young age, future earnings potential, and risk appetite, two popular options are the HBIC Magnum MultiCap and HDFC Small Cap Fund. This article evaluates the pros and cons of each, along with advice on how to choose the best option based on your individual circumstances.
The Most Important Considerations for Investing in Mutual Funds
When considering mutual funds, there are three key factors to consider:
Duration: A higher duration allows for better compounding and reinvestment benefits. Risk Appetite: Determines the fund category that aligns with your risk tolerance. Age: Helps estimate the number of years you will be earning and how much risk you can afford.Based on your stated goal of remaining invested for 20 years at a high risk, a strong recommendation would be the HDFC Small Cap Fund. It offers significant returns with a healthy alpha of over 8% and a robust performance by the fund managers.
diversification and Emergency Fund Strategy
It is crucial to diversify your portfolio across different sectors, including both large and mid-cap stocks. Additionally, building an emergency medical fund for unforeseen circumstances is advisable.
In conclusion, if you are young and investing for the long term, you can choose both the HBIC Magnum MultiCap and the HDFC Small Cap Funds. However, if you must choose one, HDFC Small Cap would be the better option due to its potential for higher returns despite higher volatility.
Creating a Balanced Portfolio
To balance risk and reward, invest 80% of your capital in a multi-cap fund and the remaining 20% in a small cap fund. The small cap fund, although highly volatile, can provide substantial returns over a period of 7 to 8 years. However, its NAV can drop to as low as 50% in adverse market conditions, making it essential to have only a small portion of your portfolio in this asset class and to consider your risk tolerance.
It is important to consult professional financial advice before making any investment decisions. Mutual funds carry market risk, and individual circumstances play a significant role in choosing the right fund.
Disclaimer: Mutual fund investing carries market risk. Consult a professional before investing.