I am aged 72 years and totally retired since 2019. Despite limited income, I am investing Rs12,000 per month in mutual fund mostly in equity segment of reputed AMCs initially for a period of 3 years and may extend later. Kindly suggest whether this is a right decision or needs a review.

Ans: Arun! It's commendable that you have been consistently investing in mutual funds for the last 1.5 years. At age 39 and married, it's essential to ensure your investments align with your long-term financial goals. Let’s evaluate your current mutual fund portfolio and suggest any necessary changes for better growth and risk management.

Current Investment Portfolio
Your portfolio currently includes:

Quant Small Cap: Rs 2,000 per month
Quant Multi Asset Fund: Rs 2,000 per month
Kotak Small Cap: Rs 2,000 per month
Axis Mid Cap: Rs 2,000 per month
Nippon India Small Cap: Rs 1,000 per month
Total monthly investment: Rs 10,000

Evaluating Your Current Funds
Small Cap Funds: You have a substantial exposure to small-cap funds (Quant, Kotak, Nippon). Small-cap funds can offer high returns but come with higher risk and volatility.

Multi Asset Fund: Quant Multi Asset Fund invests in a mix of asset classes, providing diversification and some stability.

Mid Cap Fund: Axis Mid Cap Fund offers a balance between risk and return, with potential for good growth.

Recommendations for Better Growth
Diversify Across Market Capitalizations: Your current portfolio is heavily skewed towards small-cap funds. Adding large-cap and multi-cap funds will provide stability and diversify risk.

Reduce Overlap: Ensure that your funds do not have significant overlap in stock holdings. This helps in reducing risk and improving overall portfolio performance.

Include a Large Cap Fund: Large-cap funds invest in well-established companies, offering stability and steady returns. Adding a large-cap fund can balance your portfolio.

Suggested Portfolio Allocation
Large Cap Fund: Allocate Rs 2,000 per month. Large-cap funds provide stability and steady growth.

Mid Cap Fund: Continue investing Rs 2,000 per month in Axis Mid Cap Fund. Mid-cap funds offer a balance between risk and return.

Small Cap Fund: Maintain one small-cap fund (Rs 2,000 per month). Choose either Quant or Kotak Small Cap for high growth potential.

Multi Cap Fund: Allocate Rs 2,000 per month to a multi-cap fund. These funds invest across market capitalizations, providing diversification and growth.

Multi Asset Fund: Continue investing Rs 2,000 per month in Quant Multi Asset Fund. It offers diversification across different asset classes.

Investing for Your Child’s Future
For your child's future, consider a dedicated child-specific mutual fund or a balanced fund. These funds provide growth with moderate risk, ensuring a secure future for your child.

Suggested Fund for Child
Child-Specific Fund or Balanced Fund: Start with a Rs 5,000 SIP. These funds are designed to grow steadily while ensuring capital protection.
Importance of Regular Reviews
Periodic Review: Regularly review your investments to ensure they align with your financial goals. Market conditions change, and periodic reviews help in making necessary adjustments.

Rebalancing Portfolio: Rebalance your portfolio periodically to maintain the desired asset allocation. This helps in managing risk and optimizing returns.

Benefits of Actively Managed Funds
Actively managed funds aim to outperform the market through strategic decisions by professional fund managers. They offer the potential for higher returns compared to index funds, which merely track market performance.

Disadvantages of Direct Funds
Direct funds have lower costs but lack professional guidance. Investing through a Mutual Fund Distributor (MFD) with a CFP credential ensures expert advice and tailored investment strategies.

Conclusion
Your current investment strategy shows a good start, but it can benefit from further diversification and a balanced approach. Adding large-cap and multi-cap funds will reduce volatility and provide steady growth. For your child's investment, a dedicated child-specific or balanced fund is recommended. Regular reviews and rebalancing will ensure your portfolio remains aligned with your financial goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: Current Investment Portfolio
Monthly SIP Investments

HDFC Infrastructure Fund: Rs 4,000
SBI PSU Fund: Rs 12,000
HDFC Defence Fund: Rs 10,000
HDFC Small Cap Fund: Rs 5,000
Quant Small Cap Fund: Rs 10,000
Nippon India Growth Fund: Rs 4,000
Total Monthly Investment: Rs 45,000
Evaluating Your Investment Choices
Sector-Specific Funds

Investing in sector-specific funds like Infrastructure, PSU, and Defence.
These funds are subject to sectoral performance and can be volatile.
Small Cap Funds

Small Cap Funds have high growth potential but come with high risk.
Diversification within this category is good but ensure you are comfortable with the risk.
Growth Fund

Growth funds focus on companies with high potential for growth.
They offer balanced risk and reward.
Analytical Insights
High Concentration Risk

High allocation in sector-specific and small-cap funds increases risk.
Diversifying across different sectors can reduce this risk.
Potential for High Returns

Sector-specific funds can give high returns if the sector performs well.
Small-cap funds can significantly grow if the market conditions are favorable.
Assessing Long-Term Growth
Expected Returns

Assuming an average return of 12-15% per annum.
With a 10% annual increment in investments.
Projected Growth

Regular investments and increments can compound significantly.
In 10 years, your investment can grow considerably.
Recommendations for a Balanced Portfolio
Diversification

Include large-cap and multi-cap funds for stability.
Diversify across different sectors to mitigate risk.
Professional Management

Consider consulting a Certified Financial Planner.
They can guide you in balancing your portfolio.
Rebalancing

Regularly review and rebalance your portfolio.
Adjust based on market conditions and personal goals.
Disadvantages of Sector-Specific Funds
Concentration Risk

Sector funds depend on the performance of a single sector.
If the sector underperforms, your returns can be negatively impacted.
Volatility

Sectors can be highly volatile.
Broader funds offer better risk management.
Benefits of Actively Managed Funds
Professional Expertise

Actively managed funds have expert fund managers.
They make informed decisions to maximize returns.
Flexibility

Fund managers can adjust the portfolio based on market changes.
This can potentially lead to higher returns compared to index funds.
Final Insights
Your current portfolio shows a high-risk, high-reward strategy with significant allocations in sector-specific and small-cap funds. While this can yield high returns, it also carries higher volatility and concentration risk. Diversifying your portfolio by including large-cap and multi-cap funds can provide stability and balanced growth. Regularly reviewing and rebalancing your investments, and consulting a Certified Financial Planner, will help in optimizing your portfolio for long-term success.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in