Your Fund Portfolio

I am a 31-year-old with an employed wife and a six-year-old child. I started investing in MFs in 2012 and have a corpus of ₹9 lakh till date. I currently invest ₹18,000 a month through SIPs in the following funds: ₹4,000 each in Sundaram Small Cap Fund, Reliance Tax Saver and ABSL Tax Relief, and ₹3,000 each in Franklin Nifty Index and Franklin Equity Hybrid. I can invest another ₹12,000 per month. I recently switched ₹3 lakh of my accumulated corpus to Reliance Small Cap as a lump sum.

Please let me know if I need to change my fund choices, and where I can invest the additional money. I would like to get to a ₹2-crore corpus in 20 years. I have term insurance and a 2 BHK flat on which I pay EMIs. The ₹2-crore corpus is to achieve goals such as my retirement, and my child’s education and wedding.

Deepak

It is commendable that you are saving and investing as much as ₹18,000 a month in a disciplined fashion and taking such a long-term view of your investments. But to get the maximum value from your investments, you will need to map out your goals individually, work to a clear asset-allocation plan and make your fund choices scientifically. Your current investment pattern suggests that you have not thought through these aspects sufficiently.

The risks you take and the returns you earn depend a lot on how you allocate your money between equity and debt, and also between large-, mid- and small-cap stocks in your choice of mutual funds. Presently, your investments are spread across two multi-cap tax-saving schemes with a mid- and small-cap tilt, one small-cap fund, one large-cap fund and one aggressive hybrid fund. Based on a rough calculation, about 40 per cent of your SIP money is presently going into large-cap stocks, about 18 per cent into mid-caps and 27 per cent into small-caps, with the rest into the hybrid product.

Given that you have a very long horizon in mind, you can afford to invest entirely in equities. However, we would advise a higher large- and mid-cap allocation while pruning your allocation to small-cap stocks.

You should choose MFs for your SIPs based on their mandate and strategy; their track record of beating their benchmarks and category over five or more years; and the stability and competence of the fund management team. Based on these criteria, we suggest you divide your monthly investment of ₹30,000 into five equal parts.

We suggest you invest ₹6,000 each in ABSL Tax Relief, Franklin Tax Shield (a large-cap-oriented ELS fund), Mirae Asset Emerging Bluechip (a large- and mid-cap fund), Reliance Small Cap fund (for aggressive small-cap exposure) and ICICI Pru Nifty Next 50 (carries lower costs and is a better-performing index fund). This investment pattern will result in about 50 per cent of your money being invested in large-cap stocks, about 30 per cent in mid-caps and the rest in small-caps.

Your decision to switch ₹3 lakh of your accumulated corpus to Reliance Small Cap through a lump-sum investment was a mistake. The most important benefit of investing via SIPs is that you get to phase out your investments over different market levels. When you invest a lump sum in the market, if stock prices fall sharply after your investment, you lose a lot of capital. Given that you had been investing through SIPs, it was not advisable to convert it into a lump-sum investment. We suggest redeeming 80 per cent of your investment in Reliance Small Cap and dividing it equally across the four other funds suggested above.

Finally, you are well-placed to get to a ₹2-crore corpus in 20 years with your current investments. At 12 per cent annual return, you need to invest only ₹21,800 per month to get to ₹2 crore in 20 years.

But you could be seriously underestimating the sum you will need for your child’s education and wedding, and your retirement needs. If your current monthly expenses are at ₹50,000 and inflation is 7 per cent, and you retire at 60 and live on until 85, you will need a ₹9.27-crore retirement corpus to maintain your current lifestyle. Do use the services of a financial advisor to map out the inflation-adjusted value of your financial goals and to review your portfolio from time to time.

Send your queries to mf@thehindu.co.in

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