Hi Experts, I am 34 and doing SIP (5k each) in Quant Multi Asset, ICICI Equity & Debt Aggressive hybrid, ICICI small cap, Axis bluechip and Tata Resources& Energy MF for sometime now. Is this diversified enough, or needs change?

Ans: You've put together quite an extensive list of SIPs across various categories. While diversification is a key principle in investing, it's also essential to ensure that the portfolio aligns with your investment goals, risk tolerance, and time horizon.

Firstly, let's reflect: are there overlaps within these funds? Some of them might have similar objectives or may even hold overlapping stocks. Over-diversification can dilute returns, so it's crucial to maintain a balance.

Considering you have multiple flexi-cap funds, have you thought about the need for so many? Flexi-cap funds inherently offer flexibility to invest across market caps, so having too many might not add significant value.

Additionally, you've covered a broad spectrum from large-cap to small-cap, which is good for diversification. However, have you assessed your risk appetite given the exposure to small and mid-cap funds, which can be more volatile?

Lastly, while the list is diverse, have you considered thematic or sectoral funds' potential risks? They can be rewarding but come with higher volatility due to their specialized focus.

A Certified Financial Planner can provide a holistic view, ensuring your portfolio is both diversified and aligned with your financial goals.

Ans: Your investment journey is on the right track. You have started early, and that's a big advantage. You are also increasing SIPs every year, which will help reach your target. But, your fund selection needs some improvements.

Issues with Your Current Portfolio
Too Much in Index Funds

You have two index funds, both in direct plans. These funds will only match the market returns.

Index funds do not outperform in volatile or falling markets.

Actively managed funds can generate better returns with expert fund management.

Direct Plans May Not Be the Best Choice

Direct funds may seem to save costs, but they lack professional guidance.

Regular plans through a Certified Financial Planner provide expert fund selection.

A good financial expert helps in tracking and rebalancing investments.

Small-Cap Fund Has High Risk

Your small-cap fund can give high returns but also faces deep corrections.

Small caps can take years to recover from market crashes.

It is better to keep them at a lower allocation.

Mid-Cap Allocation Needs Review

Mid-cap funds perform well in growing markets but fall more during market crashes.

A balanced mix of large, mid, and small-cap funds works better.

Suggested Portfolio Adjustments
Shift from Index Funds to Actively Managed Funds

Replace both index funds with a flexi-cap or large-cap active fund.

Active funds can generate better risk-adjusted returns than passive funds.

Increase Large-Cap Exposure

Your portfolio lacks a strong large-cap presence.

Large-cap funds provide stability in tough market conditions.

Reduce Small-Cap Exposure

Keep your small-cap allocation to 10-15% of your total investments.

Shift some amount to a multi-cap or flexi-cap fund for better balance.

Will You Achieve Rs. 1 Crore in 10 Years?
A 10% annual increase in SIP is a smart approach.

With improved fund selection, your goal is achievable.

Market fluctuations will impact growth, but disciplined investing helps.

Other Important Steps for Wealth Growth
Emergency Fund: Keep at least 6 months' expenses in a liquid fund or FD.

Health Insurance: Ensure you have a good medical policy for financial security.

Term Insurance: If you have dependents, get a pure term life cover.

Tax Planning: Invest in ELSS funds if you want to save tax under Section 80C.

Final Insights
Your SIP habit is excellent, but fund selection needs improvement.

Avoid direct and index funds; choose actively managed regular plans.

Diversify with large, mid, and small-cap funds for stability and growth.

Stay invested for the long term and rebalance when needed.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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