I am 52 years old investing 5 k sbi nifty 150 midcap, 5 k in sbi nifty 250 small cap and 5k in sbi dividend yield fund as sip for 2 years and also invested 250000 as lumpsum in Sbi contra fund. What will be the return and can i continue the sip.

Ans: There are already adequate funds in your portfolio, no need to increase the number of funds any further. The amount can be increased if required.

Thirteen to 15 per cent returns can be expected in long run. However, mutual fund investments are subject to market risk

 

Ans: To calculate the potential return on your SIP investment after 10 years, we can use a compound interest calculator. However, it's important to note that past performance is not indicative of future results, and market conditions can vary.

Assuming an average annual return rate based on historical performance:

ICICI Pru Nifty 50 Index Fund Growth: This fund aims to replicate the performance of the Nifty 50 index, offering relatively stable returns over the long term.
Quantum Active Fund Regular Plan: Known for its value investing approach, this fund seeks to generate capital appreciation over the long term.
SBI Large and Mid Cap Fund Regular Growth: This fund invests in both large-cap and mid-cap stocks, offering a balance between growth potential and stability.
Given the different investment strategies of each fund, your overall return would depend on the performance of the underlying assets and market conditions. It's advisable to consult with a financial advisor for a more accurate assessment based on your risk tolerance and investment goals.

Ans: Your SIP is 4200/- ?

Ans: Your current monthly SIP is well-structured, covering small-cap and mid-cap funds, as well as sectoral opportunities. The portfolio aims for high growth, but it also comes with some risk due to a high allocation to small-cap funds.

Key features of your portfolio include:

Focus on Small-Cap Funds: You have allocated Rs 11,500 to small-cap funds. Small-cap funds offer high potential for growth but come with volatility. They are better suited for long-term investors like you since you are investing for 10 years.

Diversification: The inclusion of sectoral and mid-cap funds adds some diversity, but it is still heavily skewed towards small-cap. This will give you more potential for high returns but with risks.

Risk and Volatility: Small-cap and mid-cap funds tend to be more volatile. You will see fluctuations in returns, especially in market downturns. However, over 10 years, these investments should stabilize and potentially yield significant returns.

Appreciating your dedication to a long-term investment approach, I must point out that while you can expect good returns, you will need to be prepared for market fluctuations.

Expected Returns and Risk Assessment
Though I won't name specific schemes, your portfolio leans towards aggressive growth. Based on historical trends:

Small-Cap Funds: Historically, small-cap funds have delivered returns between 12-15% over long periods. However, they can experience downturns, so expect some volatility.

Mid-Cap and Sectoral Funds: Mid-cap funds have the potential to provide returns of around 10-12% in the long run. Sectoral funds may vary depending on the industry’s performance but can deliver substantial gains in growth sectors.

Given your 10-year horizon, it is likely that you could achieve average annualized returns between 10-14%. Please remember that returns are not guaranteed and depend on market performance.

Benefits of Actively Managed Funds Over Index Funds
Since you are focused on small-cap and mid-cap funds, let me explain why actively managed funds can outperform index funds:

Active Management: Fund managers actively select stocks with high growth potential in small-cap and mid-cap spaces, often outperforming indices in the long term.

Flexibility: Actively managed funds can adjust their portfolio based on market conditions. This is especially important for small-cap funds, as market dynamics can change quickly.

Potential for Higher Returns: Small-cap and mid-cap funds managed by experienced fund managers can capitalize on opportunities that an index may miss.

In contrast, index funds or ETFs simply track a broad market and do not offer the same targeted growth potential as actively managed funds. By sticking to actively managed funds, you increase your chances of higher returns.

Importance of Regular Funds Over Direct Funds
There are several reasons why investing through a Mutual Fund Distributor (MFD) with a Certified Financial Planner (CFP) credential is beneficial:

Expert Guidance: Regular funds come with the guidance of a Certified Financial Planner. This is particularly useful in managing risk, adjusting your portfolio, and optimizing returns.

Risk Management: As markets fluctuate, a CFP can help you rebalance your portfolio and reduce unnecessary risks.

Holistic Planning: Investing through an MFD ensures that you receive a comprehensive financial plan, which takes your entire financial situation into account, not just investments.

While direct funds may offer lower fees, you miss out on the professional support and planning that a Certified Financial Planner provides. In the long run, this guidance often results in better outcomes for investors.

Taxation Considerations on Mutual Funds
With the new taxation rules:

Long-Term Capital Gains (LTCG): For equity mutual funds, any gains over Rs 1.25 lakh are taxed at 12.5%.

Short-Term Capital Gains (STCG): STCG is taxed at 20%.

Debt Funds: If you decide to include debt mutual funds in your portfolio later, note that both LTCG and STCG on debt funds are taxed as per your income tax slab.

Understanding the tax implications will help you better manage withdrawals and gains in the future.

Evaluating Your Investment Horizon
Your 10-year investment horizon is ideal for the current portfolio because small-cap and mid-cap funds perform best over the long term. During this period, you will:

Capture Full Market Cycles: Small-cap funds are prone to higher volatility but can deliver strong performance over complete market cycles. A 10-year horizon is perfect for this strategy.

Benefit from Compounding: Staying invested for 10 years allows your returns to compound, significantly growing your wealth over time.

However, you should periodically review your portfolio, especially in the last 3 years of your investment term, to assess if any rebalancing is needed.

Suggestions to Improve Your Portfolio
While your portfolio is strong, a few adjustments could enhance your risk-return balance:

Consider Large-Cap or Balanced Funds: Introducing large-cap or balanced funds can reduce volatility, especially if market conditions worsen. These funds provide stability and diversification.

Sectoral Allocation: Having a sectoral fund in your portfolio is a good move for high growth, but be cautious of overexposure to one sector. If the sector performs poorly, it can drag down returns.

Periodic Reviews: Although you have a long-term horizon, it’s important to conduct annual reviews. This will help you stay on track and adjust your investments if needed.

Importance of Having a Goal-Based Approach
It’s important to link your investments to specific financial goals. This will help you stay motivated and maintain focus during periods of market volatility. Consider setting the following goals:

Retirement: If this portfolio is aimed at retirement, calculate how much you need at the end of 10 years. Adjust your SIPs accordingly to ensure you meet your retirement goals.

Education: If you are saving for children’s education, time your withdrawals carefully to avoid high taxes.

Setting clear goals will help you plan better and adjust your strategy if needed.

Emergency Fund and Insurance Coverage
If you haven't already, make sure you have an emergency fund in place. Ideally, this should cover 6 to 12 months of your monthly expenses. Also, ensure you have adequate life and health insurance coverage to protect your family and your financial plan in case of unforeseen events.

Rebalancing and Flexibility
It’s essential to remain flexible in your approach:

Periodic Rebalancing: As you approach the end of your investment term, consider rebalancing your portfolio. Move part of your investments to safer options to protect your gains.

Stay Open to Adjustments: As your financial situation or market conditions change, be open to adjusting your SIPs, fund choices, or asset allocation.

Finally
Your dedication to long-term investing is commendable. Over the next 10 years, you can expect strong growth from your portfolio. However, remember that market volatility is a part of the journey, especially with small-cap funds. Stick to your plan, and review your portfolio regularly. With the right adjustments, you will likely achieve your financial goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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