I am 29. I have been doing SIPs in the following funds since three years: DSP Black Rock Micro Cap - ₹2,000;  SBI Bluechip and SBI Magnum Midcap – ₹1,500 each; Franklin Smaller Companies and Reliance Small Cap – ₹1,000 each. I can invest ₹2,000 more per month. I have moderate to slightly high risk appetite. I am looking for good returns in 5-7 years. Any suggestions on my portfolio?

Mohit Gupta

The choice of funds in your portfolio doesn’t gel with your risk appetite and investment horizon. A majority of the money that you are putting in every month — ₹5,500 out of a total of ₹7,000 — goes into small and mid-cap funds, thus pushing up the risk quotient quite high. You also have a limited time period in mind.

Though all the small/micro and midcap funds you have chosen are chart toppers, their one , three and five-year performance has predominantly been influenced by the rally in the markets since late 2013. Even after corrections in the volatility of last one year, mid and small-cap stocks still trade at higher valuations than large-cap stocks. While trailing valuations of the BSE Sensex stand at 20.4 times, the BSE SmallCap index sports a trailing valuation of 42. 8 times; the BSE MidCap index trades at 25.9 times. This makes small and mid-cap stocks more vulnerable to corrections in the near to medium term. A horizon of five years may or may not be enough to let these funds go through the fall, recoup their losses and then make further gains to give returns commensurate with the higher risk involved in investing in them.

Rather than having a 75-80 per cent allocation to mid and small-cap funds, allocating 40 per cent the portfolio to mid- and small-cap funds will suit your risk profile and time horizon better. Out of the total of ₹9,000 you can invest every month, put in ₹2,700 each per month in SBI Bluechip and Birla Sun Life Frontline Equity. The remaining ₹3,600 can be equally split between DSPBR Microcap and Franklin Smaller Companies.

I am 32 and have just started SIP of ₹1,000 for 10 years in HDFC Balanced Fund. I want to invest the same amount in ELSS, Large-cap and index funds. Which funds would be ideal?

Vairavasundaram

For large-cap exposure, you can invest in ICICI Prudential Focused Bluechip Equity, while you can choose DSPBR Tax –Saver among ELSS funds. Over the last five years, most index funds have mirrored the 8-9 per cent returns recorded by the Nifty 50/Nifty 500 or Sensex in this period. And yes, they carry lower risk. But considering your age and your willingness to take exposure in diversified equity funds, you can rethink your strategy to invest in index funds. For one, the returns of index funds lag the returns of many active funds benchmarked to the indices mentioned above. Besides, you can maintain a low risk portfolio by investing in equity-oriented balanced funds and pure large-cap funds as well. You can also consider index- based ETFs which have a similar risk profile to index funds, but whose charges are lower.

I am 24. I want a corpus of ₹2 crore by the time I reach 50. How much should I invest per month and in which funds?

Saurav Khaitan

It is good that you are making an early start in saving for your silver years. For a corpus of ₹2 crore after 26 years, you need to invest roughly ₹9,300 in the form of SIPs every month. This amount has been arrived at assuming a reasonable 12 per cent compounded annual return on your investment. You can spilt this amount equally and invest ₹3,100 each in the following funds – Franklin India Prima Plus (large-cap oriented), ICICI Pru Value Discovery (multi-cap fund) and Mirae Asset Emerging Bluechip ( mid-cap fund). This combination will give you good exposure not only to stocks across market capitalisations but also across value and growth strategies. Since you have a long horizon, remember to review their performance regularly and replace if necessary.

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