Your Fund Portfolio

I have been investing in the following funds for the last three years: Quantum Long Term Equity Value - ₹5,000, HDFC Hybrid Equity - ₹5,000, HDFC Mid-Cap Opportunities - ₹5,000, ICICI Prudential Bluechip - ₹5,000, and Franklin India Equity Advantage (earlier Flexicap Fund) - ₹5,000. I plan to continue my investments in MFs for the next 10 years and can take moderate risk. I request you to evaluate my investment pattern and advise the best way forward. I have investments in PPF and FDs, too.

Deepthi Shreekanth

It is evident from your query that you are a prodigious saver and investor. It is no easy task to systematically invest ₹25,000 a month. You also have a sufficient investment horizon of 10 years to reap the rewards of your investments. But you will be able to build a far more effective portfolio if you decided on the specific financial goals towards which you are investing.

These goals will decide your asset allocation, and fund categories and choices. Setting your goals and asset allocation is, in fact, far more important to investment plans than selecting the right funds.

To illustrate, if you are looking to buy a car or pay the down payment on a house within five years, equity funds may be unsuitable and you may have to invest in debt funds. If all your financial goals are likely to crop up only after 10 years, you can afford to have all-equity portfolio. In that case, you could even construct a portfolio with slightly more aggressive fund choices than you are doing now. Deciding on asset allocation and investment goals also helps you construct focussed portfolios and stay the course during bad times for the market.

We note that your fund portfolio right now is invested mainly in equity funds (except HDFC Equity Hybrid which has a 35 per cent debt component). Within the equity funds, your fund choices lean quite heavily towards large-cap, stock-oriented funds. On a rough calculation, 55 per cent of your SIP money is flowing into large-cap stocks, which are the top 100 stocks in the market. Large-cap stocks contain losses well in a market fall, and may do just a little better than the Nifty50 in the long run. Mid-cap stocks, which offer greater room for market outperformance, make up about a third of your allocations, while there is almost no allocation to small-cap stocks.

However, going by the assumption that your fund choices are quite deliberate and go with a moderate risk appetite, we suggest that you replace Franklin India Equity Advantage with Franklin India Focused Equity, to bring in a different styled fund with a higher allocation to mid- and small-cap stocks.

The average salary of a fresher is ₹15,000 per month. How can she manage her money? What percentage should be invested? Where should she invest in order to get returns on a short- and a long-term basis, assuming an increment every year?

Aparna Nayak

The most important financial habit for a person just starting on her investment journey is to start saving a part of her monthly income. To inculcate this habit, she should first set aside her savings from her monthly pay cheque before spending. Saving 20 per cent of the monthly income will be ideal, but if this proves tough, she can start with 10 per cent and raise it, as her income increases. The entire savings should be invested.

For a young investor, it makes sense to invest in a market-linked vehicle with an equity component to maximise long-term returns, and MFs are the best bet here. However, a new investor who makes her first investment in an equity can be spooked by volatility. Therefore, we would recommend starting a systematic investment plan in a multi-asset or dynamic-asset fund that divides its investments between equity, debt and debt-like investments, so that she can get used to market returns.

ICICI Prudential Balanced Advantage, HDFC Balanced Advantage and Quantum Multi Asset are good starter funds, of which she can choose one.

Send your queries to mf@thehindu.co.in

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