Hi, I'm 37 and I just started to invest in MFs regualarly. My investments are listed below. Except a couple, all of them are either 1 month to a few days old. As mentioned below, started SIP of 40000 between Motilal Oswal Nifty Midcap 150 and Nippon india small cap. I would like to invest 40000 more in SIPs makig my total investment as 1CR over the next 10 years, in the hopes of creating a portfolio of 2 CR with a 12% return on year. I understand that there are too many plans but appreciate your suggestions on trimming this down while meeting the above mentioned financial goal. Appreciate your help. Fund Name Type Invested amount Current Value Motilal Oswal Nifty 500 Momentum 50 Index Dir-G One Time 50000 50000 Nippon India Nifty 500 Momentum 50 Index Dir-G One Time 50000 50000 Mirae Asset ELSS Tax Saver Dir-G One Time 50000.05 70277 Mirae Asset ELSS Tax Saver Reg-G One Time 24998.74 38598.39 Parag Parikh Flexi Cap Dir-G One Time 50000.01 52727.9 Axis ELSS Tax Saver Dir-G One Time 30000 63863.44 Nippon India Large Cap Dir-G One Time 49999.99 52358.59 Motilal Oswal Midcap Dir-G One Time 50000.02 54061.94 Quant Small Cap Dir-G One Time 100000 103437.48 Motilal Oswal Nifty Midcap 150 Dir-G SIP 19999.98 20319.3 Nippon India Small Cap Dir-G SIP 20000 20040.62

Ans: Schemes are decent but there are too many.

XIRR of 26.5 per cent is very good. However, it is not sustainable in the long run.

Risk-free rate (10 year G-sec) + inflation and some alpha should be a reasonable expectation.

In 12 years, a monthly SIP of Rs 39,000 may create a corpus of Rs 1.5 crores @ 13 per cent interest rate.

 

Ans: The funds that can be continued are 15, 16, 26, 27, 28, 29, 30, 32 and 33; 27, 29, 30, and 33 being debt funds and 15, 16, 28 and 32 being equity funds.

Ans: At 37, you are at a great stage to build a solid investment portfolio over the next decade. Starting with Rs 40,000 in monthly SIPs and planning to increase it by another Rs 40,000 gives you a strong foundation. Your goal to achieve Rs 2 crore over 10 years with an expected 12% return is ambitious yet achievable. However, streamlining your investments and making some strategic decisions can enhance your chances of success.

Current Portfolio Overview

You’ve listed investments in various mutual funds, but as you’ve noticed, your portfolio is spread across too many schemes. While diversification is essential, over-diversification can dilute returns and complicate portfolio management.

Many of your investments are in similar categories, such as mid-cap and small-cap funds, which may create unnecessary overlap.

Let’s examine your investment approach and suggest areas for improvement.

Review of Portfolio Components

Equity Exposure

Your current portfolio has a strong focus on equity, with allocations in mid-cap and small-cap categories. This is aligned with your age and long-term goal. However, the challenge here is balancing risk and return. Small- and mid-cap funds can deliver high returns, but they also carry higher volatility. If you are ready to withstand short-term market fluctuations, continuing with these investments can work. However, trimming overlapping funds can help.

Tax-Saving ELSS Funds

You have multiple ELSS (Equity Linked Savings Scheme) investments. While they help with tax savings, having multiple funds under the same category may not be necessary. Consolidating into one or two ELSS funds will simplify your portfolio without losing the tax benefits. You also have both regular and direct plans in ELSS funds.

Regular plans come with a commission to the distributor, but working with a certified financial planner will guide you towards better decisions. Direct plans, while cheaper, lack this ongoing guidance.

Large-Cap and Flexi-Cap Investments

Your large-cap and flexi-cap funds provide a balance to the high-risk small and mid-cap investments. These funds are essential to manage risk and ensure steady growth, especially in volatile markets. I recommend keeping one or two of these funds as they provide much-needed stability.

Momentum and Index Funds

You have invested in a couple of index and momentum funds. Index funds typically have lower expense ratios, but their passive management may not always align with long-term goals. Actively managed funds can better navigate market conditions, aiming for higher returns, especially if selected through a certified financial planner. It's better to focus on actively managed funds to increase your portfolio's growth potential over time.

Streamlining Your SIPs

Given that you aim to invest Rs 1 crore over the next 10 years, it is important to carefully choose where your additional Rs 40,000 SIPs should go. Here are some strategies:

Trim the Overlap in Mid-Cap and Small-Cap Funds: You currently invest in both small-cap and mid-cap categories through multiple schemes. It’s wise to trim down to one mid-cap and one small-cap fund that have consistently performed well. Too many funds in the same category will dilute your returns without providing additional benefits.

Focus on Consistent Performers: Choose funds that have a long track record of performance across market cycles. If some of your funds are new or untested, they may carry a higher risk.

Balanced Approach with Large-Cap or Flexi-Cap Funds: Allocate a portion of your additional Rs 40,000 SIPs to large-cap or flexi-cap funds. These provide better downside protection and ensure stability in case small- and mid-cap funds underperform in the short run.

Consolidation Recommendations

ELSS Funds: Pick one ELSS fund that has consistently outperformed over a longer period. You can then focus your tax-saving investments in this fund and avoid unnecessary duplication.

Mid- and Small-Cap Funds: Retain one strong mid-cap and one small-cap fund. Avoid spreading investments across too many small- and mid-cap funds as this may result in higher risk without proportional reward.

Large-Cap Funds: Keep one large-cap or flexi-cap fund to provide balance. These funds may not have as high a return potential as small- or mid-cap funds, but they reduce overall portfolio volatility.

Optimising Future Investments

Your plan to invest Rs 80,000 per month is solid. Here’s how you can distribute this:

Large-Cap/Flexi-Cap Funds: Allocate Rs 20,000 towards large-cap or flexi-cap funds for stability.

Mid-Cap Funds: Continue with Rs 20,000 in a strong-performing mid-cap fund.

Small-Cap Funds: Continue with Rs 20,000 in one small-cap fund, keeping your exposure to high-growth opportunities.

ELSS Funds (Tax-Saving): You can allocate Rs 20,000 towards your ELSS fund if you need to optimise your tax savings under Section 80C. Otherwise, consider investing in large-cap or flexi-cap funds.

Balancing Risk and Return

While a 12% return is a reasonable expectation for equity investments over 10 years, remember that markets can be volatile. It's essential to:

Review your portfolio regularly. At least once a year, review your fund performance. Rebalance if necessary, but avoid frequent changes based on short-term market movements.

Stay consistent. Market fluctuations will happen, but continuing your SIPs through all market conditions can help achieve your long-term goals.

Avoiding Index Funds

Index funds are often low-cost and track the performance of an index, like the Nifty 50 or Nifty Midcap 150. However, their passive nature means they cannot adapt to changing market conditions. They may underperform in volatile markets or when specific sectors underperform. Actively managed funds, on the other hand, offer professional expertise in selecting stocks, which can lead to better returns, especially in growing markets like India.

Direct vs Regular Plans

Direct plans have lower expense ratios but require self-management. While this may save on costs, the lack of professional guidance can lead to suboptimal decisions. Regular plans, especially those advised by a certified financial planner, come with the benefit of regular oversight. Working with a certified financial planner ensures your portfolio stays aligned with your goals.

Final Insights

You’ve taken a great first step by starting with a strong SIP investment strategy. Now, the key is to simplify and focus on consistent performers. By trimming down overlapping funds, you’ll manage risk better and enhance the potential for meeting your goal of Rs 2 crore in 10 years.

Make sure to:

Streamline your ELSS and mid-cap/small-cap funds.
Invest in large-cap or flexi-cap funds for stability.
Avoid over-diversification and focus on consistent, long-term performers.
Finally, stay disciplined, review your portfolio annually, and consult a certified financial planner to stay on track for your financial goals.

Best Regards,
K. Ramalingam, MBA, CFP,

Chief Financial Planner,
www.holisticinvestment.in
Instagram: https://www.instagram.com/holistic_investment_planners/

Ans: 1. Nifty 500 Momentum 50 Index is a recently introduced index and hence also your funds based on this index. The back tested results look attractive however I recommend you to monitor them closely for 2-3 years and if you feel not sure about their progress you may exit and redeploy proceeds into PPFAS flexicap fund and Nippon large cap fund.

2. The additional 40 K sip proposed maybe split between either ELSS(for tax saving too) or PPFAS flexicap and Nippon India large cap fund.

3. You may merge your ELSS investments into one fund, my advice would be Mirae Asset ELSS.

4. This will help rationalize number of funds in your portfolio from 10(+2) to 7.

5. Discipline, focus and periodic review in MF investment are a must!

6. As you reach closer to your target transfer the gains from equity funds to liquid/debt funds to protect it from volatility.

I am quite hopeful that you may very well achieve the intended target with the right approach.

*Investments in mutual funds are subject to market risks. Please read all scheme related documents carefully before investing.

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Happy Investing!!