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22-Year-Old Investor Seeks Advice on Mutual Fund Allocation

Ramalingam

Ramalingam Kalirajan  |9752 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Dec 16, 2024

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more
Asked by Anonymous - Dec 14, 2024Hindi
Money

My age is 22,Its my first time in mutual funds Total amount:25,000 Allocation:20%,30%,30%,20% This are my mutual funds 1. HDFC nifty 50 index fund (5000rs) 2.Motilal oswal midcup fund(7500rs) 3.Quant small Cap fund (7500rs) 4.Parag Parikh Flexi Cup fund(5000rs technical large cup) Is this the right allocation and right mutual fund i will do my research properly if there is anything wrong with it I am thinking about not investing in hdfc nifty because ppfc is technically a large cup what are your opinions?

Ans: Starting mutual fund investments at 22 years is an excellent decision. It gives you time to compound your wealth over the years. Let us evaluate your current strategy and identify any improvements needed.

Asset Allocation Review
Your allocation of 20%, 30%, 30%, and 20% is balanced across large-cap, mid-cap, small-cap, and flexi-cap categories.

This diversification reduces risks and allows participation in different market segments.

Your focus on mid-cap and small-cap funds (60%) indicates a higher risk tolerance. This is suitable for your age but requires periodic review.

Insights on Individual Categories
1. Large-Cap Fund
You are considering replacing your large-cap fund because the flexi-cap fund overlaps with this category.

Flexi-cap funds allocate dynamically across large, mid, and small caps. This makes your large-cap fund somewhat redundant.

However, large-cap funds offer stability, especially during market downturns. Evaluate if removing this fund aligns with your risk profile.

2. Mid-Cap and Small-Cap Funds
Allocating 30% each to mid-cap and small-cap funds demonstrates a growth-oriented approach.

These funds have higher potential for long-term returns but also come with higher volatility.

You should remain invested for at least 7-10 years to maximise benefits.

3. Flexi-Cap Fund
Flexi-cap funds provide flexibility to invest across market caps.

This fund complements your portfolio well as it adapts to changing market conditions.

Retain this fund as it balances risk and reward effectively.

Observations on Portfolio Design
Overlaps in Fund Categories:
Your flexi-cap fund may already invest in large-cap stocks. This makes your standalone large-cap fund less critical.

Weightage Adjustment:
Consider reducing exposure to small-cap funds slightly (from 30% to 20%) if you want to lower risk.

Simplicity Matters:
Avoid adding too many funds in the future. A cluttered portfolio complicates tracking and performance evaluation.

Disadvantages of Index Funds
Index funds lack the flexibility to adjust to market conditions. They mirror the index and cannot outperform it.

Actively managed funds have experienced managers who can select outperforming stocks.

Active funds provide better returns in emerging markets like India due to market inefficiencies.

Avoiding Direct Mutual Funds
Direct funds save on commissions but require hands-on management and regular reviews.

Investing through a Certified Financial Planner (CFP) ensures expert guidance, periodic rebalancing, and stress-free investing.

A CFP helps you select funds that align with your financial goals.

Tax Implications
Gains from equity funds held for over one year are classified as long-term capital gains (LTCG).

Gains up to Rs. 1.25 lakh per year are tax-free. Beyond this, LTCG is taxed at 12.5%.

Short-term capital gains (STCG) on equity funds are taxed at 20%.

Understand the tax impact of redeeming funds before selling.

Long-Term Wealth Building
Your young age gives you an edge. Compounding works best over the long term.

Aim to increase investments periodically as your income grows.

Set specific financial goals (e.g., buying a house, retirement) and align your investments with them.

Steps to Strengthen Your Investment Strategy
Reevaluate Risk Appetite:
While mid-cap and small-cap funds promise high returns, ensure you can tolerate market fluctuations.

Reassess Large-Cap Fund:
If you prefer stability, keep the large-cap fund. If not, redistribute this amount into other funds.

Regular Monitoring:
Review your portfolio annually and rebalance if needed.

Stay Disciplined:
Market corrections are normal. Avoid frequent changes based on short-term performance.

Emergency Fund:
Ensure you maintain a separate emergency fund. This prevents premature withdrawals from your mutual funds.

Final Insights
Your portfolio is well-designed for a first-time investor. With small tweaks, it can achieve even better balance.

Avoid focusing only on returns. Consider risks, goals, and your investment horizon.

Invest consistently, and let compounding work its magic.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment
DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.
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Kapil Padha: Kindly give your expert opinion regarding my monthly mutual fund investments of Rs. 28000 (all SIPs) I have been doing for the last 4 years. I am 39 yr old. I want to create a corpus of around 2 Crore in the next 15 years. Your expert opinion will be appreciated. 1. HDFC Children's Gift Fund - (Lock-in) - Regular Plan - Rs. 10000. 2. ICICI Prudential Midcap Fund - Growth - Rs. 5000 3. ICICI Prudential Multicap Fund - Growth - Rs. 2000 4. Axis Bluechip Fund - Regular Growth - Rs. 4500 5. Axis Focussed 25 Fund - Regular Growth - Rs. 2000 6. SBI Focussed Equity Fund - Regular Growth - Rs. 4500 Are the funds mentioned above good? Or do I have to change to some other funds?
Ans: Dear Kapil,

I appreciate your proactive approach towards building wealth for the future. I must say that you have chosen a diversified set of mutual funds which is a good start towards achieving your financial goals.

To begin with, your investment of Rs. 28,000 per month towards mutual funds is a commendable step towards wealth creation. Assuming a yearly growth rate of 12%, you can potentially reach your target of 2 Crore in the next 15 years.

Coming to your mutual fund portfolio, the HDFC Children's Gift Fund has a lock-in period of five years, which is ideal if you are investing for your child's education or marriage. However, you may consider shifting your investments to the HDFC Hybrid Equity Fund or HDFC Equity Fund, which have delivered good returns historically and have a lower lock-in period.

The ICICI Prudential Midcap Fund and ICICI Prudential Multicap Fund are excellent choices for investing in mid-cap and multi-cap funds, respectively. The Axis Bluechip Fund is a good option for investing in blue-chip companies, while the Axis Focused 25 Fund and SBI Focused Equity Fund are suitable for investing in focused portfolios.

Overall, your mutual fund portfolio seems to be well diversified, and you may consider making minor tweaks to it based on your risk appetite and investment goals. As always, it's essential to consult with your financial advisor before making any investment decisions.

I hope this helps!

..Read more

Ramalingam

Ramalingam Kalirajan  |9752 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 15, 2024

Money
Hi Sir, My name is Krishna & I am 38 years old and I have a savings of around 40Lakhs in bank in FD's and I started investing 20000 every month from Jan-2024 in these mutual funds [DSP Nifty 50 Equal Weight Index Fund Direct-Growth, HDFC Index Fund Nifty 50 Plan - Direct Plan, Nippon India Large Cap Fund - Direct Plan, Edelweiss Large Cap Fund - Direct Plan, ICICI Prudential Bluechip Fund - Direct Plan-Growth, Kotak Emerging Equity Fund - Direct Plan, Motilal Oswal Midcap Fund - Direct Plan,Axis Small Cap Fund - Direct Plan, Kotak Multi Asset Allocator FoF - Dynamic - Direct Plan, Edelweiss Aggressive Hybrid Fund - Direct Plan]. I checked through money control and value research before investing in these mutual funds. Please let me know if my investments are good?
Ans: Hello Krishna,

Your commitment to financial planning and investment is commendable. Let's analyze your mutual fund portfolio to ensure it aligns with your goals and risk tolerance.

Portfolio Composition
Your portfolio comprises a diverse range of mutual funds, spanning various categories including large-cap, mid-cap, small-cap, index funds, and hybrid funds. This diversified approach spreads risk across different market segments and investment styles.

Fund Selection
Index Funds: Investments in index funds like DSP Nifty 50 Equal Weight Index Fund and HDFC Index Fund Nifty 50 Plan provide exposure to the broader market, capturing the performance of the Nifty 50 index constituents.

Active vs. Passive Management:
While you've included both actively managed mutual funds and index funds (ETFs) in your portfolio, it's important to understand the differences between the two. Actively managed funds aim to outperform the market through active stock selection and portfolio management, while index funds passively track a specific index's performance.
Benefits of Actively Managed Funds:
Actively managed funds offer the potential for higher returns compared to index funds, especially during market inefficiencies or when skilled fund managers can identify lucrative investment opportunities. Additionally, active management allows for flexibility in portfolio construction and adjustments based on market conditions.
Potential Disadvantages of Index Funds:
While index funds offer low expense ratios and broad market exposure, they may lack the potential for outperformance compared to actively managed funds. Additionally, they're subject to tracking error, which occurs when the fund's performance deviates from the index it's designed to replicate.

Large Cap Funds: Nippon India Large Cap Fund, Edelweiss Large Cap Fund, and ICICI Prudential Bluechip Fund offer stability and growth potential by investing in established companies with strong fundamentals.

Mid Cap and Small Cap Funds: Motilal Oswal Midcap Fund and Axis Small Cap Fund aim to capitalize on the growth potential of mid-sized and small-sized companies, albeit with higher volatility.

Hybrid and Multi-Asset Funds: Kotak Multi Asset Allocator FoF - Dynamic and Edelweiss Aggressive Hybrid Fund provide a blend of equity and debt exposure, suitable for investors seeking balanced returns with lower risk.

There are some advantages to consider direct funds, and the cost savings can be significant in the long run. However, there are some potential benefits to using a regular MFD:
Advantages of Investing Through a Mutual Fund Distributor (MFD):
• Personalized Advice: MFDs can be helpful for beginners or those who lack investment knowledge. They can assess your risk tolerance, financial goals, and investment horizon to recommend suitable mutual funds. This personalized guidance can be valuable, especially if you're new to investing.
• Convenience: MFDs handle all the paperwork and transactions on your behalf, saving you time and effort. They can help with account setup, SIP registrations, and managing your portfolio across different funds.
• Investor Support: MFDs can be a point of contact for any questions or concerns you may have about your investments. They can provide ongoing support and guidance throughout your investment journey.

Fund Research
Cross-referencing your fund selections with reputable sources like Moneycontrol and Value Research is a prudent approach. These platforms offer valuable insights into fund performance, risk metrics, and portfolio composition, aiding informed investment decisions.

However, relying solely on mutual fund ratings overlooks individual financial goals and risk tolerance. Ratings may not account for changing market conditions or long-term performance. Blindly following ratings can lead to a mismatched portfolio, potentially resulting in suboptimal returns and increased investment risk over time.

Continuous Monitoring
Regularly reviewing your portfolio's performance, fund ratings, and market dynamics ensures alignment with your financial goals and risk appetite. Periodic rebalancing and adjustments may be necessary to optimize returns and manage risk effectively.

Conclusion
Your mutual fund portfolio exhibits diversity and a thoughtful selection process, indicating a sound investment strategy. By staying informed, maintaining a disciplined approach, and periodically reassessing your investments, you're well-positioned to achieve your financial objectives.

Best Regards,

K. Ramalingam, MBA, CFP
Chief Financial Planner
www.holisticinvestment.in

..Read more

Ramalingam

Ramalingam Kalirajan  |9752 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jan 30, 2025

Money
Hello sir, I am aged 38 and like to invest in mutual fund for first time. My horizon is minimum 15years for wealth creation.Kindly review my choices for 35k monthly allocation. 1. Gold mf 3000 2. Hdfc balanced advantage fund - 5000 3. Icici pru equity and debt fund - 5000 4. Parag parikh flexi cap fund - 5000 5. Hdfc flexi cap fund - 5000 6. Hdfc midcap opportunities - 3000 7. Kotak emerging midcap equity - 3000 8. Icici nifty IT index fund - 4000 9. Kotak nasdaq 100 fof - 2000 Please let me know if o need to add any fund or change the allocation of amount among these funds for moderate risk profile. Also i want to invest 20-25 lakh lumpsum as STP. On which fund above and how much shall i invest lumpsum.
Ans: You are 38 years old and investing in mutual funds for the first time.

Your investment horizon is at least 15 years, which is good for wealth creation.

You plan to invest Rs. 35,000 per month through SIP.

You also want to invest Rs. 20-25 lakhs as a lump sum through Systematic Transfer Plan (STP).

Your risk profile is moderate, meaning you want a balance of growth and stability.

Reviewing Your Current Fund Selection
1. Gold Fund (Rs. 3,000 per month)
Gold is not a long-term wealth creator like equity.

It offers hedging against inflation, but returns are not consistent.

A small allocation is fine, but 10% of your SIP is too high.

Reduce to Rs. 1,500 per month and use the extra Rs. 1,500 in equity.

2. Balanced Advantage Fund (Rs. 5,000 per month)
These funds dynamically shift between equity and debt.

They reduce volatility but may not maximise returns over 15 years.

Keeping it is fine, but Rs. 3,000 per month is enough.

3. Equity & Debt Hybrid Fund (Rs. 5,000 per month)
This fund offers stability with some equity growth.

Good for a moderate risk profile.

Rs. 3,000 per month is sufficient.

4. Flexi Cap Funds (Rs. 10,000 per month in two funds)
Flexi-cap funds invest across large, mid, and small caps.

They offer diversification and strong long-term returns.

Keeping two funds is fine, but they should be different in strategy.

Rs. 10,000 allocation is good, but ensure they don’t overlap too much.

5. Midcap Funds (Rs. 6,000 per month in two funds)
Midcap funds can deliver high growth but are volatile.

Investing Rs. 6,000 per month (17% of SIP) is reasonable.

If you want less risk, reduce midcap allocation to Rs. 4,000.

6. IT Index Fund (Rs. 4,000 per month)
Index funds are not ideal, as they don’t outperform actively managed funds.

IT sector is cyclical and has periods of underperformance.

If you want sector exposure, use an actively managed technology fund instead.

Avoid this fund and redirect Rs. 4,000 to flexi-cap or large-cap funds.

7. International Fund (Rs. 2,000 per month)
Exposure to global markets is good for diversification.

The Nasdaq 100 is tech-heavy, which makes it risky.

If you want international exposure, choose a diversified global fund instead.

Keep Rs. 2,000 allocation but switch to a fund with wider global exposure.

Suggested SIP Allocation After Changes
Gold Fund: Reduce from Rs. 3,000 to Rs. 1,500 per month. Gold is not a long-term wealth creator.

Balanced Advantage Fund: Reduce from Rs. 5,000 to Rs. 3,000 per month. These funds are good for stability but may not maximise returns.

Hybrid Equity & Debt Fund: Reduce from Rs. 5,000 to Rs. 3,000 per month. This allocation is enough for stability.

Flexi Cap Funds: Keep the Rs. 10,000 per month allocation. These funds provide good diversification and long-term growth.

Midcap Funds: Reduce from Rs. 6,000 to Rs. 4,000 per month. Midcap funds are volatile. A moderate risk profile requires a slightly lower allocation.

IT Index Fund: Remove the Rs. 4,000 per month allocation. Index funds don’t outperform actively managed funds, and IT sector performance is cyclical.

International Fund: Retain Rs. 2,000 per month, but choose a fund with broader global exposure instead of a tech-heavy index.

Large Cap Fund (New Addition): Add Rs. 5,500 per month to a well-managed large-cap fund for stability and consistent growth.

How to Invest Rs. 20-25 Lakhs as STP
Invest the lump sum in a liquid or ultra-short-term fund to avoid market timing risks.

Transfer through Systematic Transfer Plan (STP) over 12-18 months to reduce volatility impact.

Allocate 60% to flexi-cap and large-cap funds for stability and growth.

Allocate 30% to midcap and hybrid funds for balanced growth.

Allocate 10% to international and gold funds for diversification.

Final Insights
Your SIP plan is well-structured, but minor changes will improve risk-return balance.

Removing the IT index fund and reducing midcap exposure will lower volatility.

Increasing large-cap allocation will bring stability without compromising returns.

Investing the lump sum through STP over 12-18 months will reduce risk.

Choosing actively managed funds over index funds will provide better returns.

This approach ensures long-term wealth creation with controlled risk.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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

..Read more

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DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Investment in securities market are subject to market risks. Read all the related document carefully before investing. The securities quoted are for illustration only and are not recommendatory. Users are advised to pursue the information provided by the rediffGURU only as a source of information and as a point of reference and to rely on their own judgement when making a decision. RediffGURUS is an intermediary as per India's Information Technology Act.

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