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Should I continue SIP with ICICI Bluechip & Canara Robeco Bluechip? Also, what new SIP funds should I start for a 10-year horizon?

Ramalingam

Ramalingam Kalirajan  |8033 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Nov 04, 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
Sahil Question by Sahil on Nov 03, 2024Hindi
Money

Sir i am doing SIP OF RS 10000 EACH IN ICICI BLUE CHIP AND CANARA ROBECO BLUE CHIP FUND. RS 5000 IN PPFAS FLEX CAP FUND. I WANT TO START SIP FORCRS 10000 MORE. KINDLY SUGGEST WHETHER MY SIP ARE CORRECT AND FUNDS TO START NEW SIP. HORIZON IS ABT 10 YRS.

Ans: your commitment to regular SIPs is highly commendable and forms a strong foundation for wealth creation over the next decade. Let's evaluate your current fund choices and explore additional options to ensure a balanced portfolio for long-term growth. Below is a comprehensive assessment of your investments.

Reviewing Your Existing SIPs
Current Equity Focus: You are currently investing Rs 10,000 each in two blue-chip funds. Blue-chip funds focus on large-cap companies, offering stability and potential for steady growth. With a 10-year horizon, this choice is generally aligned with long-term goals, as large-cap funds can provide consistency and moderate growth over time.

Flexi Cap Investment: Your Rs 5,000 SIP in a flexi-cap fund brings exposure across large-, mid-, and small-cap segments. This is beneficial, as it allows the fund manager flexibility to allocate between different market caps, potentially boosting returns through strategic diversification.

Long-Term Potential: Both blue-chip and flexi-cap categories align well with a 10-year goal. The large-cap focus provides stability, while the flexi-cap allocation enhances growth potential. This combination balances risk and return, creating a solid base for wealth accumulation.

Considering Portfolio Diversification
Diversification Beyond Large Cap: Your portfolio is currently weighted towards large-cap funds. For a 10-year horizon, adding exposure to mid- or small-cap funds could enhance returns. Mid-cap funds, for instance, have historically outperformed large caps over longer periods due to their growth potential, though they carry slightly higher volatility.

Sectoral and Thematic Funds: For a focused long-term strategy, sectoral or thematic funds are another option. These funds invest in specific sectors like technology or healthcare, capturing sector-specific growth. However, sectoral funds are volatile and may require periodic review, as they depend on sector performance. They should form only a small part of your portfolio due to their concentrated risk.

Balancing Risk with Multi-Cap Allocation: Multi-cap funds are ideal for diversification. These funds distribute investments across market segments and are actively managed to maximise growth opportunities. A multi-cap fund could serve as a middle ground, reducing risk compared to small-cap funds while potentially outperforming large-cap-only funds.

Tax Efficiency and Investment Structure
Capital Gains Taxation on Mutual Funds: With equity funds, long-term capital gains (LTCG) above Rs 1.25 lakh are taxed at 12.5%. For short-term gains, the rate is 20%. Given the long investment horizon, focusing on tax efficiency through long-term holdings is advisable to optimise net returns.

Benefits of Investing in Regular Mutual Funds via MFDs: Direct mutual funds may appear cost-effective due to lower expense ratios. However, regular funds offer expert advice and portfolio management by Certified Financial Planners (CFPs) and MFDs. The guidance of professionals ensures proper fund selection and rebalancing based on market conditions and your goals. This support can add value beyond mere expense savings.

Recommendations for Additional SIP Investment Options
To maximise your portfolio’s growth potential and address any gaps, consider these fund types for your new Rs 10,000 SIP allocation.

Mid-Cap Funds: Adding a mid-cap fund can offer higher growth potential. Mid-caps have room for expansion and often outperform large-caps over longer periods. However, they can be volatile in the short term. Allocating Rs 5,000 to a mid-cap fund could provide a growth boost while balancing risk with your existing large-cap investments.

Multi-Cap Funds: A multi-cap fund with Rs 5,000 would offer diversification across all market caps. Multi-caps adjust their allocation dynamically, capturing growth from all segments. This approach reduces dependency on a single segment, helping your portfolio perform well across varying market cycles.

Balanced Advantage Fund (BAF): For stability, consider adding a balanced advantage fund. These funds adjust between equity and debt based on market conditions, offering both growth and capital protection. With a portion in BAF, you could enjoy equity-linked returns with reduced volatility, which complements pure equity holdings.

Strategic Allocation for Long-Term Wealth Creation
Staggering Investments: Since you’re looking at a 10-year horizon, consider a staggered SIP approach for new investments. This will help you capture market volatility to your advantage through rupee-cost averaging, reducing the impact of short-term market fluctuations.

Review and Rebalance Periodically: Set a review frequency—ideally once a year. During this review, assess fund performance, portfolio composition, and alignment with goals. Rebalancing ensures that your portfolio remains aligned with your risk tolerance and growth objectives as markets evolve.

Setting Growth Expectations: It’s important to have realistic growth expectations, especially with a diversified portfolio. While mid- and small-cap funds can outperform, they also bring higher volatility. Balancing these funds with blue-chip and balanced advantage funds can stabilise returns over time.

Final Insights
Your current investments lay a solid foundation with stability from blue-chip funds and growth flexibility through a flexi-cap fund.

By adding mid-cap, multi-cap, and possibly a balanced advantage fund, you diversify across market caps and asset classes, optimising for growth with moderated risk.

A Certified Financial Planner’s guidance ensures that your portfolio adapts to market shifts, which is vital over a 10-year horizon. This professional advice will help in balancing cost-efficiency and tailored fund management, which is crucial in optimising long-term growth.

Regular reviews and rebalancing, supported by an MFD with CFP credentials, will enhance your portfolio’s performance and alignment with your 10-year goals.

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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Ramalingam Kalirajan  |8033 Answers  |Ask -

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Sir/Madam, I am 27 years, 6 months ago I started doing sip of 10k total, five mutual funds 2k each, 1. Quant small cap 2. Parag parikh flexi cap 3. Kotak equity opportunities 4. Parag parikh elss tax saver 5. HDFC dividend yield I know I started a bit late, but now I am full stable and disciplined to be consistent and increase the sip amount by time to time. Am I going right, are my chosen funds are good, or I should change, please help and guide, give corrective suggestions
Ans: It's fantastic to see your proactive approach to investing at such a young age. Let's delve into your portfolio and see how you're doing:

• Starting a SIP at 27 is a commendable step towards building wealth for your future. Remember, it's never too late to begin investing, and your consistency will be key to your success.

• Your choice of mutual funds reflects a diversified approach, covering different sectors and market capitalizations. This is a smart strategy as it spreads your risk across various segments of the market.

• Investing in small-cap, flexi-cap, equity opportunities, ELSS tax saver, and dividend yield funds provides you with exposure to different investment styles and strategies. However, it's essential to review these funds periodically to ensure they continue to align with your financial goals.

• Consider assessing the performance of each fund against its benchmark and peers to gauge whether they are meeting your expectations. Look for consistency in returns and fund management expertise.

• As you progress in your investment journey and your financial situation evolves, you may consider increasing your SIP amount gradually. This will accelerate the growth of your portfolio over time.

• Additionally, stay updated with market trends and changes in economic conditions to make informed decisions about your investments. Keeping yourself informed will help you navigate any market volatility effectively.

• If you're unsure about whether your chosen funds are the right fit for you, don't hesitate to seek advice from a Certified Financial Planner. They can provide personalized recommendations based on your financial goals, risk tolerance, and investment horizon.

In conclusion, you're off to a great start with your SIP investments. Stay disciplined, continue to educate yourself about investing, and periodically review your portfolio to ensure it remains aligned with your objectives. With patience and perseverance, you're on track to build a strong financial foundation for the future. Keep up the excellent work!

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Ramalingam

Ramalingam Kalirajan  |8033 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Aug 20, 2024

Money
Sir i have started Sip of rs 10000 in icici prudential large cap fund and rs 3000 nippon large cap fund Rs 2000 in canara robeco blue chip fund. I have requirement of funds after around 10 yrs. Kindly suggest if the funds are good. Ci have another 10000 to invest in sip can you suggest some funds
Ans: You have already started SIPs in ICICI Prudential Large Cap Fund, Nippon Large Cap Fund, and Canara Robeco Bluechip Fund. This shows a good diversification across large-cap funds. Large-cap funds are known for their stability and consistent returns, especially over a long-term horizon like 10 years. Your choice of funds is generally sound for building a strong foundation in your portfolio. However, let’s take a closer look at the specific types of funds and the overall strategy.

Large-Cap Funds: Understanding the Benefits

Large-cap funds primarily invest in companies with a large market capitalization. These companies are usually well-established, financially stable, and less volatile compared to mid-cap and small-cap companies. This means:

Lower Risk: Large-cap companies are more stable, making the investment less risky.

Steady Returns: These funds tend to provide steady and moderate returns over time.

Strong Market Presence: The companies in large-cap funds often have a significant presence in the market, adding an element of security to your investments.

Consistency: Large-cap funds have a track record of providing consistent returns, which is ideal for your 10-year investment horizon.

Analysis of Your Fund Choices

You have chosen to invest in three large-cap funds. Here is how this strategy aligns with your financial goals:

ICICI Prudential Large Cap Fund: This fund is known for its robust portfolio and strong performance in the large-cap space. It tends to be well-diversified, focusing on high-quality companies.

Nippon Large Cap Fund: This fund has a reputation for being more conservative, which can balance the other funds in your portfolio. It is a good choice if you seek stability with moderate growth.

Canara Robeco Bluechip Fund: Canara Robeco’s fund is another strong performer in the large-cap category. It provides a good mix of growth and value investing, which can enhance your portfolio’s overall performance.

These funds collectively provide you with a diversified large-cap portfolio, reducing your risk while aiming for steady returns over the next decade. However, investing in multiple funds of the same category (large-cap) could result in overlap, meaning you might not be fully capitalizing on other segments of the market.

Suggestions for Your Additional SIP Investment

Since you have another Rs 10,000 to invest monthly in SIPs, let’s consider diversifying beyond large-cap funds. Diversification across different categories of funds can help you balance risk and optimize returns. Here are some suggestions:

Mid-Cap Funds: Mid-cap funds invest in medium-sized companies that have the potential for higher growth than large-cap companies. Although they come with slightly higher risk, they can offer better returns, especially in a 10-year horizon.

Small-Cap Funds: These funds invest in smaller companies that are often in the growth phase. They are riskier than large and mid-cap funds but can offer significant returns if the companies perform well over time.

Flexi-Cap Funds: Flexi-cap funds invest across large-cap, mid-cap, and small-cap stocks. They provide flexibility to the fund manager to allocate funds based on market conditions. This can be beneficial in capturing opportunities across market segments.

Balanced Advantage Funds: These funds dynamically allocate between equity and debt based on market conditions. They offer the benefit of equity growth while managing downside risk through debt investments.

Sectoral/Thematic Funds: If you have a higher risk appetite and want to take advantage of specific sectors like technology, pharma, or infrastructure, sectoral or thematic funds could be an option. However, these funds can be more volatile and require closer monitoring.

Advantages of Actively Managed Funds

While index funds are often touted for their low expense ratios, actively managed funds have several advantages, especially in a dynamic market like India:

Potential for Higher Returns: Actively managed funds aim to outperform the benchmark index, offering the potential for higher returns compared to index funds.

Flexibility: Fund managers have the flexibility to adjust the portfolio based on market conditions, which can protect your investments during downturns.

Research and Expertise: Active funds benefit from the research and expertise of fund managers, who make informed decisions to maximize returns.

Tactical Allocation: Active funds can tactically shift allocations between sectors or market caps, allowing you to benefit from market trends.

Disadvantages of Index Funds

Index funds, while popular, come with some disadvantages:

Limited Returns: Index funds are designed to mirror the performance of a benchmark index, which means they cannot outperform the market. This limits your return potential.

No Flexibility: Index funds stick to a predetermined list of stocks, regardless of market conditions. This lack of flexibility can be a disadvantage in volatile markets.

Tracking Error: Although index funds aim to replicate an index, tracking errors can occur, leading to deviations in performance.

No Downside Protection: In a market downturn, index funds will mirror the losses of the index with no protective strategies in place.

The Importance of Investing Through a Certified Financial Planner

Investing through a regular plan with the guidance of a Certified Financial Planner (CFP) can provide several benefits over direct plans:

Personalized Advice: A CFP can tailor your investment strategy based on your specific financial goals, risk tolerance, and investment horizon.

Regular Monitoring: A CFP can regularly review your portfolio and suggest changes as needed to ensure you stay on track to meet your goals.

Holistic Financial Planning: Beyond mutual funds, a CFP can help you with tax planning, retirement planning, insurance, and estate planning, ensuring a comprehensive approach to your finances.

Access to Expertise: Regular plans come with the benefit of professional management and access to the expertise of financial advisors, who can help you navigate complex financial decisions.

Behavioural Guidance: Investing can be emotional, and a CFP can help you avoid common mistakes like panic selling during market downturns or over-investing during booms.

Finally: Aligning Your Investments with Your Goals

Your current portfolio of large-cap funds is a solid foundation for achieving your financial goals over the next 10 years. However, diversifying into other types of equity funds can further enhance your portfolio’s growth potential while managing risk. Consider allocating your additional Rs 10,000 SIP into a mix of mid-cap, small-cap, and flexi-cap funds to capture growth opportunities across the market spectrum.

Investing through a Certified Financial Planner ensures that you receive personalized guidance, expert advice, and regular monitoring of your investments. This can help you achieve your financial goals with confidence, while also ensuring that your portfolio is well-balanced and aligned with your long-term objectives.

Remember, investing is a journey, and staying committed to your plan, regularly reviewing your portfolio, and making informed decisions with the help of a professional will help you reach your destination successfully.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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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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