Your Fund Portfolio

PVS Reddy

Your fund choices are well-suited to a person with a high risk appetite. While DSP Equity Opportunities, Axis Long Term Equity and Parag Parikh Long Term Equity are funds that mainly focus on large- and mid-cap stocks, ABSL Tax Relief ‘96 is a multi-cap fund with a higher mid-cap tilt. SBI Smallcap and L&T Emerging Business are aggressive small-cap funds.

It is true that DSP Equity Opportunities has lagged its benchmark, the Nifty 500 TRI, in the past one year. But that is true of most of the schemes in the category. The fund is a reasonable performer over the long run and has managed to beat its benchmarks over three, five, seven and 10 years. But if you would still like to consider a fund with an even better performance record in the same category (Large- and Mid-Cap), Mirae Asset Emerging Bluechip is a good choice. It, however, has a much shorter track record than DSP Equity Opportunities.

For the additional ₹5,000 that you plan to invest, we suggest you add SIPs in ICICI Pru Nifty Next 50 Index fund. We are recommending an index fund for your portfolio because it is currently made up wholly of active funds. An index fund will reduce your risk of trailing the markets at any given point in time. The Junior Nifty — or Nifty Next50 as it is called now — has proved an excellent bet for risk-taking investors because it invests in the basket of emerging bluechips that have the potential to make it to the Nifty.

You should take note that, of the ₹14,500 a month that you are today channelling into SIPs, roughly 36 per cent is flowing into large-cap stocks, about 33 per cent into mid-caps and the remaining in small-caps. This calculation is based on the current mix of stocks owned by these funds.

Your current mid- and small-cap allocations are higher than what we would normally recommend to a retail investor. But if you are comfortable with owning this portfolio, you should continue with your SIPs. There are two implications of such a strategy for your portfolio performance, though. One, while you are likely to experience high, market-beating returns in bull markets — like in the past five years — the losses on this portfolio can also be pretty high in bear markets or in a long sideways phase. While small- and mid-cap-heavy portfolios have delivered blockbuster returns in the past five years, they delivered very average returns in the 10 years prior to that. Given that we are entering a choppy phase for the markets, we hope you are braced for such a phase over the next one, three, or even five years.

Two, given that small- and mid-cap stocks typically experience higher return volatility from year to year, your investing horizon for such a portfolio also needs to be longer than what would be the case with a large-cap-tilted portfolio. For you to reap the full rewards of your aggressive investment strategy, you may need to stay invested for the next 7-10 years. But assuming you are aware of all this, this portfolio can set you well on the path to strong wealth creation in the long run.

Send your queries to mf@thehindu.co.in

COMMENT NOW