26-Year-Old in Software: Is My Investment Portfolio on Track?

Ans: First, it's great to see that you're starting early with investments, especially with a structured approach towards both long-term growth and retirement. Let’s review your portfolio and suggest any improvements:

Current Allocation Overview
Quant Small Cap Fund (Rs 10,000): Small-cap funds are high risk, but over the long term, they have the potential for high returns. However, they tend to be volatile, so it’s wise to ensure this aligns with your risk tolerance.

UTI Nifty 50 Index Fund (Rs 7,500): Index funds provide stability and mirror the broader market. This allocation is sensible because large-cap companies are more stable and less risky compared to small caps.

Quant Flexi Cap Fund (Rs 7,500): Flexi cap funds offer diversification across large, mid, and small-cap stocks. This is a balanced approach, adding flexibility to your portfolio.

Tata Small Cap Fund (Rs 5,000): Another small-cap fund focused on retirement, which again introduces high risk with potential long-term rewards. However, having two small-cap funds could increase volatility.

Assessment of Your Portfolio
Risk Distribution: You currently have a significant exposure to small-cap funds (50% of your investments). Small-cap funds are volatile, and while they may deliver higher returns over the long term, the short-term risks are high.

Diversification: Your portfolio is not very well diversified. You’re primarily invested in small caps and large caps (through the Nifty 50 Index). This leaves mid-cap exposure missing.

Flexi Cap Fund: The Quant Flexi Cap Fund balances some of the risks, but you could still consider more exposure to mid-cap stocks for a smoother return profile over time.

Recommendations
Reduce Small-Cap Exposure:

Given that you're already investing Rs 10,000 in Quant Small Cap, consider either consolidating this investment with Tata Small Cap or switching the Tata Small Cap investment into a mid-cap or large-cap fund to reduce the risk.
Suggested action: Allocate Rs 5,000 from the Tata Small Cap to a Mid-Cap Fund. This would introduce a balanced risk profile and smooth out volatility.
Increase Diversification:

Diversification across different sectors and market capitalizations helps in risk management. Adding a Balanced Hybrid Fund could give you both equity and debt exposure, further balancing your portfolio.
Monitor the Index Fund:

Nifty 50 Index funds offer stability, but they also provide average market returns, which may limit growth. Actively managed large-cap funds can sometimes outperform index funds due to professional fund management. Consider switching this to a large-cap mutual fund if you seek better returns.
Review Your Portfolio Annually:

Ensure that you review your portfolio once a year. Look for underperforming funds and switch them if necessary. This will help maintain the overall health of your investments.
Emergency and Life Cover:

Since you are the sole earner and young, consider a Term Insurance Plan for life cover, ensuring your family is financially protected in case of any unforeseen events.
Also, build an emergency fund with at least 6 months of living expenses in a liquid fund or a savings account.
Final Insights
You're off to a fantastic start by investing early. While small-cap funds provide great potential for high returns, they should be balanced with more stable options like mid-cap or large-cap funds. Reducing your exposure to small-cap and adding mid-cap or hybrid funds will help you manage risk while still aiming for growth.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment