I am 40 years and want to do retirement planning and higher studies planning for my kids(now in class 10 and class7). Currently investing 15K(5K each) in 3 mutual funds namely UTI MNC Fund Direct Growth, Tata Equity PE Fund Direct Growth and Axis ESG Integration Strategy Fund Direct Growth. I can invest 30K more from next month. Please suggest if I should increase the amount in the same MFs or invest in some other funds.

Ans: Please continue. These are good funds. There's no need to make any changes.

 

Ans: You may consider Hdfc Index Fund - Sensex Plan - Regular Plan - Growth

Yes, these funds can be continued for 10 to 15 years.

Ans: That's a great start to your investment journey! Starting to invest for your children's education and your retirement at 36 shows responsibility. Let's discuss your plan and suggest some improvements:

1. Investing for Goals!

Smart Thinking! Planning for your children's education and your retirement through SIPs in Mutual Funds is a smart approach. Actively managed funds like these have fund managers who try to outperform the market by picking stocks they believe will grow.

Long-Term Goals: Your investment horizon for both your children's education (assuming they are young) and your retirement (19 years) is good for long-term wealth creation.

2. Analyzing Your Portfolio:

Small Cap Focus: Having a majority of your investment in a Small Cap Fund might be a bit risky. Small Caps can be more volatile than other market capitalizations.

Diversification Matters: Consider adding a Large Cap or Mid Cap Fund for better diversification across different market segments.

3. Planning for Education Costs:

Cost of Education: Education costs can rise significantly. Review the potential cost of education closer to the time and adjust your investments if needed.

Early Start is Key! Starting early allows for compounding to work its magic. You're on the right track!

4. Planning for Retirement:

Consider Debt Funds: As you approach retirement, consider adding Debt Funds to your portfolio to provide stability and regular income.

Review and Rebalance: A Certified Financial Planner (CFP) can review your portfolio periodically and suggest adjustments to keep you on track for your retirement goals.

Here's the key takeaway: You've made a great start! Consider diversifying your portfolio, reviewing education costs closer to the time, and adding Debt Funds for retirement. Consulting a CFP can help you fine-tune your plan and achieve your financial goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: First, it's great to see that you have started early and are investing consistently. Starting a SIP with a diversified portfolio at 42 is a good decision. Given that your child is 11, this gives you a comfortable time horizon to plan for their higher education and your retirement.

Now, let’s evaluate your portfolio from a 360-degree perspective. You have a mix of multi-cap, mid-cap, and small-cap funds, which indicates you're already trying to balance growth and risk. However, let’s break it down further to ensure alignment with your long-term goals.

Assessing Your Mutual Fund Allocation
Multi-Cap Funds (Canara Robeco, SBI, Tata):

These funds offer flexibility by investing across large-cap, mid-cap, and small-cap stocks. This allows you to capture growth from multiple segments of the market.
Your allocation to multi-cap funds looks balanced at 30%. However, with three different multi-cap funds, you might be overlapping in stock selections.
Mid-Cap Funds (HDFC, White Oak):

Mid-cap funds typically offer higher growth potential but come with more volatility than large-cap funds.
Allocating 15% to mid-cap funds is appropriate for long-term wealth creation. However, two mid-cap funds may overlap, as they could be investing in similar stocks.
Small-Cap Funds (Tata, Nippon, UTI):

Small-cap funds carry high risk but can deliver significant returns over the long term. Allocating 35% of your portfolio to small-cap funds seems aggressive.
Consider the risk level, especially if your priority is your child’s education in about 7-10 years.
Flexi-Cap Funds (ITI Flexi Cap):

Flexi-cap funds are ideal for long-term goals because they adjust between large, mid, and small caps. This flexibility is beneficial in volatile markets.
Your 10% allocation here looks good and aligns with long-term goals.
Retirement Fund (HDFC Retirement Savings):

Allocating 12% of your portfolio to retirement-focused funds is wise. Retirement funds are structured to reduce risk over time while aiming for steady growth.
Recommendations for Portfolio Optimisation
While your fund selection is diversified across market capitalisations, there is room for improvement. Here are some considerations:

Reduce Overlap in Multi-Cap and Mid-Cap Funds:

Having too many funds within the same category can lead to overlapping investments in the same companies. This can dilute the diversification benefits.
Consider consolidating your multi-cap and mid-cap funds to two or three funds. This will streamline your portfolio and reduce the risk of duplication.
Review Your Small-Cap Allocation:

A 35% allocation to small-cap funds is high. While small-cap funds can deliver good returns, they are also volatile.
You may want to reduce your small-cap exposure to 20-25% and shift some of that into a more stable category like large-cap or balanced advantage funds. This will provide a better risk-return balance.
Focus on Active Management Over Direct Funds:

Regular funds managed through a certified financial planner offer personalised guidance, including fund reviews and rebalancing based on market conditions.
Direct funds often do not provide the same level of active management. Given that you are building a long-term corpus for your child's education and retirement, regular funds through a CFP can ensure ongoing monitoring of your portfolio.
Long-Term Financial Goals Alignment
You have two primary goals: your child’s higher education and your retirement. Both these goals require strategic planning and disciplined investing.

For Your Child’s Higher Education (10-Year Horizon):

You have about 10 years until your child starts higher education. This is a good time frame for wealth creation. However, as the education goal is time-bound, you must manage risk effectively.
Gradually reducing the allocation to small-cap and mid-cap funds as you near this goal will ensure that you protect your corpus from volatility.
Over the next few years, start shifting some of the funds into less risky assets, such as large-cap or balanced funds.
For Your Retirement (18-Year Horizon):

You have around 18 years to retire. This longer time horizon allows you to stay invested in growth-oriented funds like multi-cap and flexi-cap funds.
As you approach retirement, gradually increase your allocation to more stable funds like balanced or hybrid funds. This will ensure that your corpus is preserved and grows steadily.
Tax Implications and Fund Selection
With the new tax rules on mutual funds, it’s important to understand how your investments are taxed.

For Equity Mutual Funds:

Long-term capital gains (LTCG) over Rs 1.25 lakh are taxed at 12.5%.
Short-term capital gains (STCG) are taxed at 20%.
For Debt Mutual Funds:

Both LTCG and STCG are taxed as per your income tax slab.
Since your portfolio is equity-heavy, keep an eye on tax liabilities when you plan to redeem your funds, especially for your child’s education and your retirement.

Monitoring and Regular Review
Regular portfolio reviews are crucial, especially as your goals approach. Working with a certified financial planner ensures that your portfolio stays aligned with your evolving needs.

Annual Reviews:

Ensure that your funds are performing as expected.
Rebalance your portfolio based on market conditions and your risk tolerance.
Adjust your small-cap and mid-cap exposure as you get closer to your goals.
Risk Management:

As you near your child’s higher education and your retirement, it’s important to de-risk your portfolio.
Gradually shift from aggressive small-cap and mid-cap funds to more stable investments.
Final Insights
Your current portfolio is a solid start for long-term wealth creation. However, a few adjustments can ensure better alignment with your goals and risk tolerance.

Reduce overlap in multi-cap and mid-cap funds for better diversification.
Lower small-cap exposure to manage volatility, especially as you approach your child’s higher education.
Consider consolidating your funds to avoid over-diversification, which can dilute returns.
Stay focused on actively managed funds for personalised guidance and ongoing portfolio review.
With disciplined investing and regular reviews, you can comfortably meet your financial goals.

Best Regards,

K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment