Dear Sir, please advice. My MF portfolio is predominantly dominated by midcaps. I have SIPs in the following funds:

1. HDFC Midcap Opportunity Fund (G): Rs 10,000 (Since 2013)
2. DSP Blackrock Midcap Fund (G): Rs 10,000 (Since 2015)
3. Canara Robeco Emerging Equity: Rs 10,000 (Since 2017)
4. ICICI Prudential Focused Bluechip Equity Fund - G (Since 2017)

Should I continue with these or need some reshuffling? I would grateful if you could kindly advise me on this.

Ans: Please continue, no need to change

Ans: Hi Joseph. Following an extensive analysis of your portfolio, I recommend reconsidering the schemes such as the Axis Bluechip Fund, Aditya Birla Sun Life Small Cap Fund and SBI Flexi cap fund along with a portfolio reshuffle. Also you may introduce large and midcap category in your portfolio. Some Suggested funds are:

• Kotak Equity Opportunities Fund
• Quant Active Fund

Ans: Your portfolio is well diversified across various categories and designed for long-term horizon.

Currently, you have three mid-cap funds in your portfolio i.e. Mirae Asset Mid Cap Fund, Kotak Emerging Equity Fund, and Motilal Oswal Mid Cap Fund.

Motilal Oswal Mid Cap Fund is currently investing only in 30 stocks which makes it focused in nature. The market surge has helped the fund achieve strong returns over the last year, but these returns have not been steady and have not had a particularly strong track record. Thus, we advise you to discontinue making investments in this fund.

You have investments in two Mirae AMC funds in your portfolio. We advise you to diversify your investments among different AMCs to lower the risk of concentration and to take advantage of the various investing strategies that AMCs follow.

We suggest you to continue to invest in Kotak Emerging Equity Fund since the fund has a good track record, past performance and it is well diversified as compared to its peers.

Ans: You have been investing in mutual fund SIPs for the last four years. First, it's great that you have maintained consistency. This habit builds a solid foundation for wealth creation. Now, let’s evaluate your current portfolio.

Reviewing Each Fund
Axis Bluechip Fund: Large-cap funds like this one focus on established companies. They offer stability with moderate growth. It's suitable for risk-averse investors but may not deliver high returns compared to mid and small-cap funds.

Tata Digital Fund: Sector-specific funds, such as digital or technology-focused funds, carry higher risk. These funds can give significant returns during sectoral booms. However, they also can underperform during downturns. Consider the volatility before continuing.

SBI Small Cap Fund: Small-cap funds invest in smaller companies. These funds are riskier but can deliver high returns in the long term. However, they also tend to be more volatile. Make sure you are comfortable with this risk.

ICICI Small Cap Fund: Similar to the SBI Small Cap Fund, this fund also invests in smaller companies. It comes with high risk and potential high rewards. Diversification within the small-cap segment may lead to redundancy.

HDFC Balanced Fund: Balanced funds invest in a mix of equity and debt. They offer a balanced approach to risk and return. This is a good option for moderate risk-takers who seek stability with some growth potential.

Diversification and Risk Management
Your portfolio has a mix of large-cap, small-cap, sector-specific, and balanced funds. However, there is a concentration in small-cap funds, which could increase your overall risk.

Small-Cap Exposure: Having two small-cap funds may increase the risk without significant diversification benefits. Consider reducing this exposure to manage risk better.

Sectoral Fund Caution: The Tata Digital Fund focuses on a single sector. While it may offer high returns, it also increases your exposure to sector-specific risks. Ensure this aligns with your risk tolerance.

Balanced Approach: The HDFC Balanced Fund provides stability with a mix of equity and debt. It's a good complement to your portfolio's higher-risk funds. However, you could explore other balanced funds to ensure broader diversification.

Disadvantages of Index Funds
You didn’t mention index funds, but it’s important to understand why actively managed funds might be more suitable for your goals.

Limited Flexibility: Index funds track a specific index and cannot react to market changes. They are passive and might miss opportunities to maximize returns during market fluctuations.

Lower Returns: While index funds have lower fees, they also tend to deliver returns that mirror the market average. Actively managed funds, on the other hand, strive to outperform the market, offering potential for higher returns.

Disadvantages of Direct Funds
You seem to be investing in regular funds, which is a wise choice. Let’s examine why direct funds might not be ideal.

Lack of Professional Guidance: Direct funds require you to manage and monitor your investments. This can be time-consuming and challenging without expert knowledge. Investing through a Certified Financial Planner offers guidance, helping you make informed decisions.

Potential for Mistakes: Without professional advice, it's easy to make errors, such as overexposure to a single asset class or fund type. A Certified Financial Planner can help you diversify effectively and adjust your portfolio as needed.

Recommendations for Your Portfolio
Considering the above analysis, here are some suggestions:

Reduce Small-Cap Exposure: Consider reducing your investment in one of the small-cap funds. This will lower your portfolio’s risk without significantly impacting growth potential.

Review Sectoral Fund: The Tata Digital Fund is high-risk due to its sectoral focus. Assess your comfort level with this risk and consider switching to a more diversified equity fund.

Diversify Further: Explore adding mid-cap or multi-cap funds to your portfolio. This can provide a balanced growth opportunity without overly concentrating on a single market segment.

Consider Debt Exposure: While the HDFC Balanced Fund offers some debt exposure, you might also explore pure debt funds. These can provide stability, especially during market downturns.

Regular Portfolio Review: Regularly reviewing your portfolio with a Certified Financial Planner ensures your investments stay aligned with your goals. They can help you adjust your strategy based on market conditions and personal circumstances.

Tax Efficiency in Your Portfolio
Tax planning is an integral part of investment management. Understanding the tax implications of your investments can help maximize your returns.

Capital Gains Tax: Equity funds held for over one year qualify for long-term capital gains (LTCG) tax at 10% on gains exceeding Rs. 1 lakh. Ensure you factor this into your withdrawal strategy to minimize tax liability.

Tax-Saving Opportunities: You might also explore tax-saving instruments like Equity-Linked Savings Schemes (ELSS) if you are looking to optimize your tax outgo. These funds offer tax deductions under Section 80C while also providing growth potential.

Insurance and Protection
While your focus is on investments, don’t overlook the importance of insurance in your financial plan.

Life Insurance: If you haven’t already, consider a term life insurance policy. It’s crucial to ensure your family’s financial security in case of any unforeseen events.

Health Insurance: A comprehensive health insurance policy for your family is vital. With rising healthcare costs, this will protect your savings from being eroded by medical expenses.

Final Insights
Your commitment to a systematic investment plan over the last four years is commendable. However, a balanced and well-diversified portfolio is crucial for long-term success. Consider adjusting your portfolio to reduce risk and enhance diversification. Regular reviews with a Certified Financial Planner will ensure your investments remain aligned with your financial goals.

Continue to stay disciplined in your approach, and remember to reassess your strategy as you move forward.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in