How to smartly invest Rs. 10 lakhs in multi-cap funds for a year?

Ans:

With 10% to 15% increase annually, both goals are mostly achievable with a possibility of decent surplus over these goals.

Goal – 40 lakh after 10 years– Achievable

Goal – 3.5 to 4 Crs after 23 years – Achievable

Ans: Shift 2 and 3 to UTI Flexi Cap – Growth and Axis Bluechip Fund – Growth

STP: Parag Parikh Liquid - Growth to Parag Parikh Flexi Cap Fund – Growth

You may increase Rs 2500 each in 4 funds post suggest changes in 2 and 3

Ans: Considering your age and investment objective, it's prudent to prioritize stability and consistent returns. Opting for a mix of large-cap, blue-chip, and flexi-cap funds can provide a balanced portfolio, ensuring growth potential while mitigating risks associated with small-cap or sector-specific funds. A Certified Financial Planner can help tailor your investment strategy to align with your goals, ensuring a steady income stream through SWP while preserving your capital for the long term.

Ans: You are currently investing Rs 25,000 per month across four mutual funds: Canara Robeco, PGIM Flexicap, Nippon India Small Cap, and Tata Small Cap. Let's review your portfolio and suggest any necessary adjustments for long-term growth.

Reviewing Your Current Portfolio
Your current investments are as follows:

Canara Robeco (Rs 10,000/month): Canara Robeco is known for its balanced approach, offering stable returns.

PGIM Flexicap (Rs 5,000/month): A flexicap fund provides the flexibility to invest across various market capitalizations.

Nippon India Small Cap (Rs 7,500/month): Small-cap funds have high growth potential but come with higher risks.

Tata Small Cap (Rs 2,500/month): Another small-cap fund, adding more exposure to high-growth but volatile investments.

Analysis of Current Portfolio
Your portfolio is diversified but leans heavily towards small-cap funds, which increases risk. Small-cap funds are volatile and can lead to significant gains or losses. It is essential to balance this with funds that offer stability and moderate growth.

Suggesting a Mid Cap Fund
Adding a mid-cap fund can balance your portfolio. Mid-cap funds offer higher growth potential than large-cap funds but are less risky than small-cap funds. Here are the benefits of adding a mid-cap fund:

Balanced Growth: Mid-cap funds provide a mix of growth and stability.

Risk Mitigation: Diversifies your risk profile, reducing dependency on small-cap performance.

Potential Returns: Mid-cap funds can outperform in certain market conditions, offering substantial returns.

Recommendation for a Mid Cap Fund
Consider investing in a well-managed mid-cap fund. A mid-cap fund will provide a balanced growth approach and diversify your risk. Consult with a Certified Financial Planner (CFP) to choose the best mid-cap fund for your needs.

Considering an Additional Flexicap Fund
You already have PGIM Flexicap. Adding another flexicap fund may not be necessary. Flexicap funds provide the flexibility to invest across various market capitalizations, offering diversification within a single fund. Instead, ensure your current flexicap fund aligns with your goals.

Switching Funds: Process and Considerations
If you want to stop one fund and switch to another, follow these steps:

Step 1: Evaluate Performance
Assess the performance of the fund you wish to stop. Consider factors like past performance, consistency, and management quality.

Step 2: Redeem Units
Initiate the redemption of units from the fund you want to exit. This can be done online or through your mutual fund distributor.

Step 3: Transfer to New Fund
Once redeemed, the funds will be credited to your bank account. You can then invest this amount as a lump sum in the new fund.

Step 4: Systematic Transfer Plan (STP)
Alternatively, use a Systematic Transfer Plan (STP). This allows you to transfer the redeemed amount gradually into the new fund, reducing market timing risks.

Optimizing Your Portfolio
Regular Reviews
Review your portfolio regularly. Monitor the performance and make adjustments as needed. A quarterly review is advisable.

Rebalance Annually
Rebalance your portfolio annually to maintain your desired asset allocation. This ensures your investments remain aligned with your goals and risk tolerance.

Increase SIP Amount
As your income grows, consider increasing your SIP contributions. This will accelerate your wealth accumulation and help achieve your long-term goals faster.

Conclusion
Your current portfolio is diversified but has a heavy tilt towards small-cap funds. Adding a mid-cap fund will balance your risk and growth potential. Another flexicap fund may not be necessary. Ensure regular reviews and rebalancing to stay on track. If switching funds, consider using an STP for a smoother transition. Consulting with a Certified Financial Planner (CFP) will provide tailored advice to optimize your investments.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner,

www.holisticinvestment.in

Ans: Dear Shankar,

Firstly, congratulations on taking a significant step towards your financial goals by starting your investments. It is heartening to see individuals like you take proactive steps towards securing their future.

You mentioned investing Rs 5,000 per month in the Motilal Oswal Midcap 30 Fund and another Rs 5,000 in the SBI Contra Fund. Both funds have their merits, but let's delve deeper to assess if they align with your long-term goals.

Evaluating Your Current Funds
Motilal Oswal Midcap 30 Fund

This fund focuses on mid-sized companies with potential for growth. Mid-cap funds can be quite rewarding, especially in a growing economy like India. However, they also carry higher risk compared to large-cap funds. It's commendable that you are willing to take on some risk for potentially higher returns.

SBI Contra Fund

This fund follows a contrarian strategy, investing in undervalued stocks. This approach can be beneficial during market corrections and downturns, as these stocks may bounce back strongly. It provides a good balance to your portfolio by diversifying your investment style.

Long-Term Viability
For a ten-year investment horizon, these funds could be suitable, provided you are prepared for the market's ups and downs. Long-term investments in equity mutual funds generally yield better returns, as they smooth out short-term volatility. Staying invested for ten years can help you benefit from compounding and market growth.

Expected Returns
Estimating returns can be tricky as they depend on various factors, including market conditions, economic growth, and fund management. Historically, mid-cap funds have delivered 12-15% annual returns over the long term. Contrarian funds, while less predictable, can also yield substantial returns if their strategy pays off.

However, it is crucial to remember that past performance does not guarantee future results. Keeping realistic expectations and staying invested through market cycles is key.

Adding a New Mid-Cap Fund
Your interest in starting another Rs 5,000 monthly SIP in a mid-cap fund is a wise decision, given your long-term horizon. Mid-cap funds can be an excellent addition to your portfolio, offering potential for higher growth.

Benefits of Actively Managed Funds
Since you are considering mid-cap funds, it is essential to highlight the benefits of actively managed funds over index funds. Actively managed funds can adapt to market conditions and invest in promising companies, whereas index funds simply replicate a market index. This flexibility can lead to better performance, especially in the mid-cap segment where stock selection is crucial.

Recommendations for Mid-Cap Funds
Selecting the right fund requires thorough research. Here are some factors to consider when choosing a mid-cap fund:

Fund Performance: Look at the fund’s performance over different market cycles.
Fund Manager’s Track Record: An experienced and skilled fund manager can make a significant difference.
Expense Ratio: Lower expense ratios can improve net returns.
Fund House Reputation: Choose funds from well-established and reputable fund houses.
Considering these factors will help you make an informed decision. Consulting a Certified Financial Planner (CFP) can also provide personalized advice based on your risk tolerance and financial goals.

General Investment Tips
Diversification
Diversification is crucial to manage risk. Your current investments in mid-cap and contrarian funds provide a good mix. However, you might want to consider adding large-cap or multi-cap funds in the future for better balance.

Regular Review
Periodic review of your investments is essential. Market conditions and personal financial goals can change, requiring adjustments to your investment strategy.

Staying Informed
Keep yourself informed about market trends and economic indicators. This knowledge can help you make better investment decisions.

Emotional Discipline
It’s easy to get swayed by market volatility. Maintaining emotional discipline and staying invested during market downturns is vital for long-term success.

Potential Pitfalls of Direct Funds
Direct funds might seem attractive due to lower expense ratios, but they have some disadvantages. Direct funds require continuous monitoring and management, which can be time-consuming and challenging. Investing through a CFP can provide professional management, regular reviews, and tailored advice, ensuring your investments align with your goals.

Final Insights
Your current investment strategy is promising, with a good mix of mid-cap and contrarian funds. These funds have the potential to deliver substantial returns over a ten-year period, provided you stay invested and maintain discipline.

Starting another mid-cap fund is a prudent decision, given your long-term horizon. Carefully selecting an actively managed mid-cap fund can further enhance your portfolio's growth potential.

Remember to diversify, review your investments regularly, and consult a Certified Financial Planner for personalized advice. Your commitment to investing Rs 10,000 monthly through SIPs is commendable, and with the right strategy, you can achieve your financial goals.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner,

www.holisticinvestment.in