38-Year-Old with 18 Years to Retirement: Should I Change or Diversify My Mutual Fund Portfolio?

Ans: Your portfolio reflects consistent investment since 2018, which is commendable. Your ability to take risks, coupled with a long horizon of 15 years, provides an excellent opportunity for wealth creation. However, to optimise your portfolio, some adjustments may be needed.

Let’s analyse your current portfolio and guide you further.

Analysis of Current Mutual Fund Portfolio
1. Small-Cap and Mid-Cap Funds

Small-cap funds can provide high returns but come with high volatility.
Mid-cap funds offer a balance between growth potential and moderate risk.
You already have exposure to these funds, which suits your risk appetite.
2. Large-Cap and Large & Mid-Cap Funds

These funds add stability to your portfolio by investing in established companies.
Combining large-cap and large & mid-cap funds ensures steady returns with moderate risk.
Retain these funds but review overlap between schemes regularly.
3. Value-Oriented Funds

Value funds focus on undervalued companies for long-term growth.
While these funds can perform well, they require patience during market downturns.
Monitor the consistency of performance in these funds over time.
Suggestions for Existing Funds
Retain a mix of small-cap, mid-cap, and large-cap funds for diversification.
Avoid having too many funds in the same category to reduce duplication.
Periodically review fund performance and compare with peers.
Additional Investment Recommendations
With your increased capacity to invest Rs 10,000 more monthly, here’s what you should consider:

1. Increase Allocation to Actively Managed Funds

Actively managed funds outperform passive funds by leveraging expert fund management.
Focus on funds with consistent track records over at least five years.
2. Avoid Index Funds

Index funds replicate the market and lack flexibility.
During market downturns, index funds offer no cushion as they mimic market losses.
Actively managed funds are better for wealth creation over a long horizon.
3. Explore Balanced or Hybrid Funds

These funds combine equity and debt for a balanced risk-return profile.
They are suitable for reducing risk while still ensuring growth.
4. Sectoral Funds for a Small Portion

Allocate a small percentage (5-10%) to sectoral or thematic funds for diversification.
Ensure you understand the sectors’ risks before investing.
Importance of Regular Plans
1. Direct Funds vs Regular Plans

Direct funds require self-management, which can be time-consuming and complex.
Regular plans, through a Certified Financial Planner (CFP), ensure professional guidance.
A CFP helps align investments with your long-term goals effectively.
Taxation Considerations
Equity mutual funds: LTCG above Rs 1.25 lakh is taxed at 12.5%. STCG is taxed at 20%.
Avoid frequent withdrawals to minimise tax liability and compound returns.
Ensure tax-efficient investments for maximising post-tax gains.
Investment Strategy for a 15-Year Horizon
1. Systematic Investment Plan (SIP)

Gradually increase your SIPs every year to leverage the power of compounding.
Continue your disciplined SIP contributions without interruption.
2. Asset Allocation

Allocate 70-80% of your portfolio to equity funds for long-term growth.
Reserve 20-30% for hybrid and debt funds to balance volatility.
3. Monitor and Rebalance Portfolio

Review your portfolio performance annually with a CFP.
Rebalance your allocation to align with changing market conditions and life goals.
Final Insights
Your long investment horizon and pensionable service provide a solid base for wealth creation. With strategic adjustments to your mutual fund portfolio and increased SIPs, you can achieve substantial financial growth. Focus on maintaining a diversified and tax-efficient portfolio for optimal returns.

Stay disciplined, review your investments periodically, and consult a Certified Financial Planner to stay on track.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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