Mutual Fund Consolidation Advice: Should I Sell Some Funds to Invest in Others?

Ans: You may continue with the 5 & 4 rated funds; however for others better alternative is available

Equity - Large Cap Funds:

- LIC MF Large Cap Fund-Regular Plan-Growth

- Axis Bluechip Fund - Regular Plan - Growth

- Kotak Bluechip Fund - Growth

- Mirae Asset Large Cap Fund - Growth Plan

Equity - Mid Cap Funds:

- Motilal Oswal Midcap 30 Fund (MOF30)-Regular Plan-Growth Option

- DSP Midcap Fund - Regular Plan - Growth

Equity - Value Funds:Tata Equity P/E Fund Regular Plan -(Growth Option)

Equity - Focused Funds:

- Axis Focused 25 Fund - Regular Plan - Growth Option

- Motilal Oswal Focused 25 Fund (MOF25)- Regular Plan Growth Option

Equity - Large & Mid Cap Fund

- BOI AXA Large & Mid Cap Equity Fund Regular Plan- Growth

- Canara Robeco Emerging Equities - Regular Plan - GROWTH

- Tata Large & Mid Cap Fund- Regular Plan - Growth

Hybrid - Aggressive Hybrid Fund

- Axis Equity Hybrid Fund - Regular Plan Growth

- Dsp Equity And Bond Fund - Growth

- Motilal Oswal Equity Hybrid Fund-regular Plan Growth

Ans: Assessing Your Current Portfolio
You've done well by investing in mutual funds since 2007. Your portfolio covers a variety of fund categories, which shows your commitment to building wealth. However, consolidating your portfolio is a wise move. It allows for better management and can lead to more consistent returns.

Let's go through your current holdings and provide suggestions on which funds to keep and which to let go.

Key Points for Portfolio Consolidation
Focus on Core Funds: Keep funds that have a proven track record and align with your financial goals.

Eliminate Overlap: Multiple funds in the same category can create overlap. This dilutes your returns and makes tracking performance harder.

Consider Fund Performance: Retain funds that have consistently outperformed their benchmarks and peers over the years.

Simplify Management: Having fewer funds with more substantial investments can simplify portfolio management and enhance overall returns.

Fund-by-Fund Analysis
DSP-BR India TIGER - RP (D) and DSP-BR Top 100 Equity - RP ICDW (D)
Sector-Specific Risk: The DSP-BR India TIGER fund is sector-specific, focusing on infrastructure. While infrastructure can provide high returns, it’s also highly cyclical. This means it can be volatile.

Top 100 Fund: This fund focuses on large-cap stocks, which generally offer stability.

Suggestion: Consider letting go of the sector-specific DSP-BR India TIGER fund. Retain the DSP-BR Top 100 Equity fund if it has shown consistent performance.

Franklin India Flexi Cap Fund - IDCW
Versatility: Flexi cap funds invest across large, mid, and small-cap stocks. This provides diversification within a single fund.

Suggestion: Keep this fund if it has performed well over the years. It’s a good core holding due to its flexibility and diversification.

HSBC Large Cap Fund - Regular IDCW (Formerly L&T India Large Cap Fund)
Large Cap Stability: Large-cap funds offer stability and lower risk compared to mid or small-cap funds. They are essential for a well-rounded portfolio.

Suggestion: Retain this fund if it has outperformed its benchmark consistently.

Nippon India Growth Fund IDCW Plan and Nippon India Power and Infra Fund
Growth Fund: Nippon India Growth Fund is likely a multi-cap or mid-cap fund, offering potential for high returns but with more risk.

Sector-Specific Risk: The Power and Infra Fund is another sector-specific fund. Like the DSP-BR India TIGER fund, it carries high risk due to its focus on a single sector.

Suggestion: Keep the Growth Fund if it has delivered strong performance. Consider letting go of the Power and Infra Fund due to its sector-specific nature.

SBI Magnum Midcap Fund (D) and SBI Contra Fund (D)
Midcap Fund: Midcap funds are good for growth but can be volatile. If this fund has been a strong performer, it’s worth keeping.

Contra Fund: Contra funds invest in stocks that are currently out of favour but have the potential for long-term growth. These funds can be rewarding but are also risky.

Suggestion: Retain the Midcap Fund if it has consistently outperformed. Consider letting go of the Contra Fund if it hasn't met expectations.

Sundaram Large Cap Fund Regular - IDCW
Large Cap Stability: Similar to the HSBC Large Cap Fund, this fund focuses on large-cap stocks.

Suggestion: If this fund has performed well, you might want to keep either this or the HSBC Large Cap Fund but not both, to reduce redundancy.

HSBC Progressive Themes (D) and HSBC Advantage India Fund
Thematic Investing: These funds likely focus on specific themes or sectors, which can be risky if the theme underperforms.

Suggestion: Consider letting go of these funds unless you have a strong belief in the themes they cover and they have performed well.

HDFC Infrastructure Fund (D)
Sector-Specific Risk: Another infrastructure-focused fund, which means higher risk and potential volatility.

Suggestion: Similar to other sector-specific funds, consider letting this one go unless it has delivered exceptionally strong returns.

Edelweiss Mid Cap Fund (Regular Plan - IDCW Option - Payout)
Midcap Growth: Like the SBI Magnum Midcap Fund, this fund focuses on mid-cap stocks.

Suggestion: Keep this fund if it has shown strong performance and consider retaining only one mid-cap fund to avoid overlap.

Sundaram Diversified Equity Fund - Regular - IDCW
Diversified Equity: Diversified equity funds provide broad exposure across various sectors and market caps.

Suggestion: Retain this fund if it has consistently outperformed its benchmark and provides broad diversification.

EBRG - Mirae Asset Large and Midcap Fund (Formerly Mirae Asset Emerging Bluechip Fund) - SIP
Large and Midcap Exposure: This fund provides a mix of large and mid-cap stocks, offering a balance of stability and growth.

Suggestion: This is a strong fund to keep, especially if it has been performing well.

HDFC Children’s Gift Fund - Regular Plan (Lock-in) - SIP
Goal-Oriented Fund: This fund is likely tied to a specific goal like children’s education. These funds are generally more conservative.

Suggestion: Keep this fund if it aligns with your financial goals and has performed adequately.

Final Insights
Consolidating your portfolio is a smart move. Focus on retaining funds with a proven track record of performance and that align with your financial goals. Consider eliminating sector-specific and thematic funds unless they have consistently outperformed. By streamlining your investments, you can manage your portfolio more effectively and potentially achieve better returns.

Invest more substantial amounts in fewer funds to maximise growth and simplify management. Regularly monitor your portfolio and make adjustments as needed to stay on track with your financial goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: Current Portfolio Overview
Your mutual fund portfolio is valued at Rs. 2 crores. You have an impressive XIRR of 23%. You plan to invest an additional Rs. 1 crore. You aim to achieve a portfolio value of Rs. 6 crores in 5-6 years. Your current investments are spread across 20 mutual funds.

This diversification is quite extensive. Streamlining is needed to avoid overlap and enhance performance.

Evaluating Fund Categories
Large Cap
ICICI Prudential Bluechip Fund - Rs. 18L
Bluechip funds provide stability. They should form the core of your portfolio.
Flexi Cap
HDFC Flexi Cap Fund - Rs. 29L
Parag Parikh Flexi Cap - Rs. 17L
Quant Flexi Cap - Rs. 10L
Flexi Cap funds offer balanced exposure. They adapt to market conditions.
Multi Cap
Nippon India Multi Cap Fund - Rs. 25L
Multi Cap funds provide a mix of large, mid, and small caps. They offer diversification within a single fund.
Mid Cap
HDFC Mid Cap Opportunities - Rs. 14L
Motilal Oswal Mid Cap - Rs. 5.5L
Mid Cap funds have higher growth potential. However, they are riskier.
Small Cap
KOTAK Small Cap Fund - Rs. 11L
ICICI Prudential Smallcap Fund - Rs. 5L
Tata Small Cap Growth Direct Plan - Rs. 4L
HDFC Small Cap Fund Direct - Rs. 2.6L
Nippon India Small Cap - Rs. 3.5L
Small Cap funds can deliver high returns. They are suitable for aggressive investors.
Index Funds
HDFC Index Nifty 50 Growth Direct Plan - Rs. 10L

ICICI Prudential Nifty Midcap 150 Index Growth Direct Plan - Rs. 7L

HDFC NIFTY Smallcap 250 Index Fund Direct - Rs. 5L

Motilal Oswal Nifty Microcap 250 Index Growth Direct Plan - Rs. 2.5L

UTI Nifty200 Momentum 30 Index Growth Direct Plan - Rs. 11L

UTI Nifty Next 50 Index Growth Direct Plan - Rs. 11L

Motilal Oswal Nifty India Defence Index Growth Direct Plan - Rs. 2L

Index funds have lower fees but lack active management benefits. Active funds can outperform by selecting high-potential stocks.
Thematic Funds
Quant Infrastructure Fund - Rs. 9.5L
Thematic funds focus on specific sectors. They offer higher risk and reward.
Portfolio Streamlining Suggestions
Reduce Overlap
Consolidate Flexi Cap funds. Keep one or two best-performing funds.
Reduce Mid Cap and Small Cap funds. Focus on top performers.
Minimize Index funds. Their passive nature may limit growth.
Recommended Fund Adjustments
Switch from Index funds to actively managed funds. Active funds can outperform the market. They offer better stock selection and management.
Consider reducing your Thematic fund exposure. They carry sector-specific risks.
New Investments
Allocate new Rs. 1 crore across top-performing Large Cap, Flexi Cap, and Small Cap funds.
Focus on funds with strong historical performance and potential.
Portfolio Allocation Strategy
Large Cap: 40% of your portfolio. They provide stability.
Flexi Cap: 30% of your portfolio. They adapt to market changes.
Small Cap: 20% of your portfolio. They offer high growth potential.
Thematic Funds: 10% of your portfolio. They add diversity and high risk-reward.
Final Insights
Streamlining your portfolio will reduce overlap and enhance returns. Focus on a mix of Large Cap, Flexi Cap, and Small Cap funds. Avoid over-diversification and index funds. Invest additional Rs. 1 crore in high-performing funds. This strategy will help achieve your goal of Rs. 6 crores.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in

Ans: It’s great to see that you’re committed to securing funds for your child’s education, marriage, and retirement. These are critical milestones, and with the right approach, your investments can help you achieve them effectively.

Investment Goals and Approach

You have clear long-term objectives, which is ideal. Planning with specific goals like education, marriage, and retirement brings purpose to your investment journey. Given the 15-year investment horizon, you can take advantage of compounding benefits, especially with equity mutual funds. However, let’s ensure your portfolio is optimized for growth, risk, and tax efficiency.

Evaluating Your Mutual Fund Choices

Let’s look at your current investments across various categories:

1. Large Cap Funds
Large-cap funds provide stability, as they invest in established companies with relatively lower volatility. However, there can be limited scope for very high growth in large caps compared to mid or small caps.

You’re invested in two large-cap funds. It’s often advisable to focus on one high-performing large-cap fund to avoid overlap and unnecessary diversification.

Consider retaining a large-cap fund that has a consistent track record, active fund management, and strong research backing.

2. Flexi Cap Funds
Flexi-cap funds offer flexibility by investing across market caps. This allows the fund manager to capture growth opportunities in any segment of the market.

Holding two flexi-cap funds is fine, as it balances large and mid-cap stocks, offering both stability and growth. However, evaluate each fund’s performance and select one if you feel any duplication in returns.

3. Mid Cap Funds
Mid-cap funds offer growth potential but come with higher risk. Given your long-term horizon, they can be beneficial.

You currently have three mid-cap funds. It might be better to consolidate into one or two top-performing funds in this category to reduce excessive overlap and diversify across sectors rather than just fund names.

4. Small Cap Fund
Small-cap funds are suitable for aggressive growth but can be highly volatile. It’s wise to limit exposure to small caps, as they tend to fluctuate significantly, especially over shorter timeframes.

Given your portfolio composition, your allocation to small caps is moderate, which seems appropriate. However, ensure you are comfortable with the high-risk nature of small caps, especially if the market faces downturns.

Analysis of Direct vs. Regular Funds

Opting for direct funds might appear attractive due to lower expense ratios, but it’s crucial to weigh the potential downsides:

Lack of Guidance: Direct funds lack the guidance a Certified Financial Planner (CFP) can offer. Expert support ensures your portfolio is regularly rebalanced and aligned with market changes, personal goals, and tax updates.

Regular Tracking: With a CFP’s help, your investments are reviewed frequently, making timely adjustments in case of underperformance. This hands-on approach is particularly helpful in achieving your long-term goals.

Tax Considerations: Regular funds through a CFP can help you optimize tax efficiency by offering proactive advice on capital gains, loss harvesting, and adjusting investments according to the new capital gains tax rules.

Importance of Actively Managed Funds

While index funds may seem attractive for their lower costs, actively managed funds bring added advantages, especially for long-term investors like you:

Potential for Higher Returns: Skilled fund managers actively seek growth opportunities that can outperform benchmarks over time. This could be a significant advantage given your long-term goals.

Flexibility in Market Movements: Active funds allow managers to make informed changes, adapting to market conditions and potentially protecting your investments during volatile phases.

Diverse Exposure: With active management, your funds are better diversified across sectors and stocks, reducing concentration risk and enhancing the potential for stable returns.

Investment Strategy Recommendations

Considering your goals and time horizon, here’s a comprehensive approach to optimize your portfolio:

Consolidate Fund Choices: Consider reducing similar funds within each category. This will provide clarity and focus, making it easier to track progress and reduce management complexity.

Review and Rebalance: Regularly review your portfolio performance, preferably with a CFP, to ensure each fund aligns with your risk tolerance and goals. Aim for annual rebalancing to stay on track.

Allocate Based on Goals: Assign specific funds for each goal. For example:

Child’s Education and Marriage: Given the moderate-to-high timeframe, allocate funds with a mix of stability (large-cap and flexi-cap funds) and growth (mid-cap).
Retirement: Invest in a diversified mix of flexi-cap and large-cap funds, along with a smaller allocation to mid-caps, as retirement is a long-term goal with a potentially higher investment horizon.
Avoid Overlapping: Limit overlap between funds by choosing those with unique holdings or management strategies. Too many funds can dilute returns, especially if they invest in similar stocks.

Tax Considerations

With recent changes in capital gains tax rules, be mindful of the following when planning exits or rebalancing:

Equity Mutual Funds: Long-term capital gains (LTCG) above Rs 1.25 lakh are now taxed at 12.5%. Short-term capital gains (STCG) are taxed at 20%.

Debt Funds: LTCG and STCG for debt funds are taxed according to your income tax slab.

Tax Efficiency: To minimize tax outgo, hold investments for the long term and consult a CFP for tax-optimized rebalancing.

Investment Horizon: Sticking to your 15-year investment plan can help mitigate tax impacts and optimize returns.

Insurance Evaluation

If you hold any LIC, ULIP, or investment-linked insurance policies, review their performance and fees. These products often come with high costs, which can limit returns. Consider surrendering such policies if they don’t align with your goals and reinvest in well-performing mutual funds instead.

Finally

Your commitment to a 15-year SIP plan shows your dedication to securing your family’s future. A structured, diversified approach with periodic reviews can enhance your portfolio’s performance, aligning it with your goals of education, marriage, and retirement.

A Certified Financial Planner can be a valuable partner in this journey, providing expert advice to help you make the most of your investments and adjust them as needed.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

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