Hello, I am 22 yr old ....I currently have 3 ongoing SIP of ?5,000 each in PPFAS Flexi cap, SBI Multi cap and Mirae Asset Multi cap, so a total of ?15,000 per month. I have space for another ?5,000 sip but am a little confused to choose which fund. Please do suggest me.....and I plan to do SIP till I m 40 i.e 18 more years.

Ans: Hi Santanu, thank you for writing to me. Fund selection depends on what your risk appetite is and how much you are comfortable investing in. Please share more details so I can give you a good recommendation.

Ans: Given your long-term investment horizon of 10-15 years and your willingness to invest Rs. 2000 per month, you can consider investing in a diversified equity mutual fund. These funds typically invest in a mix of large-cap, mid-cap, and small-cap stocks, offering growth potential over the long term while spreading out risk.

Look for funds with a proven track record of consistent performance and a fund manager with a strong investment strategy. Some suitable options may include diversified equity funds with a focus on growth and a history of delivering competitive returns relative to their benchmark indices.

Remember to conduct thorough research or consult with a financial advisor to ensure the fund aligns with your risk tolerance, investment goals, and time horizon.

Ans: Your current mutual fund portfolio reflects a thoughtful approach to wealth accumulation through systematic investment plans (SIPs). Let's delve into each aspect of your portfolio and assess its performance and potential.

Diversification Analysis
Your portfolio comprises a mix of large-cap, mid-cap, small-cap, and flexi-cap funds, offering diversification across market segments. This diversification mitigates risk and enhances the potential for returns.

Performance Assessment
Each fund has its unique investment strategy and objectives. Analyzing their historical performance against benchmarks and peers provides insights into their efficacy in delivering returns.

Fund Selection Rationale
Your selection of funds appears to be well-researched, considering factors such as fund manager expertise, consistency in performance, and alignment with your risk tolerance and financial goals.

Active vs. Passive Management
Your focus on actively managed funds suggests a preference for capitalizing on the expertise of fund managers to navigate market fluctuations and exploit growth opportunities. This approach contrasts with passive strategies like index funds, which lack the agility and discretion of active management.

SIP vs. Lump Sum Investment
SIPs offer the advantage of rupee cost averaging, enabling you to buy more units when prices are low and fewer when prices are high. This disciplined approach to investing smoothens market volatility and fosters long-term wealth creation.

Regular Funds vs. Direct Funds
By investing through a Certified Financial Planner, you benefit from professional guidance and portfolio monitoring. Regular funds, though they may have slightly higher expense ratios compared to direct funds, offer value through expert advice, ensuring optimal fund selection and allocation.

Future Considerations
Regularly reviewing your portfolio's performance and aligning it with evolving financial goals is crucial. Periodic rebalancing may be necessary to maintain the desired asset allocation and adapt to changing market dynamics.

Conclusion
Your mutual fund portfolio reflects a prudent approach to wealth management, characterized by diversification, active management, and systematic investment. As a Certified Financial Planner, I commend your diligence and commitment to long-term financial well-being.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: Vijaylaxmi, it’s great that you want to start investing at the young age of 24.

Starting early gives you the benefit of time.

Your investment horizon is likely to be long, which is ideal for SIP investments.

Before selecting any fund, it's important to understand your financial goals.

You need to assess your risk tolerance, investment horizon, and financial objectives.

Since you are young, you can afford to take some risk, but that should align with your comfort level.

If you want to build wealth over the long term, equity mutual funds would suit your needs.

They have the potential to offer higher returns in the long run compared to other asset classes.

However, you should stay invested for at least 5-7 years to ride out market fluctuations.

Diversification Across Funds

It’s crucial to diversify your investments across different fund categories.

Diversification will reduce risk by spreading your money across different sectors and asset classes.

You can consider investing in large-cap funds, multi-cap funds, and mid-cap funds for diversification.

Each type of fund comes with its own level of risk and potential return.

Large-cap funds are more stable, while mid-cap and multi-cap funds can offer higher returns but come with higher volatility.

Why Not Index Funds?

You might hear people suggesting index funds, but let’s evaluate them.

Index funds simply track a market index like Nifty 50 or Sensex.

They don’t have active fund management, which means there’s no expert to make decisions during market ups and downs.

Although they have lower costs, their returns may not always outperform actively managed funds.

With actively managed funds, a professional fund manager selects stocks, making adjustments to take advantage of market opportunities.

The Benefits of SIP in Actively Managed Funds

SIP or Systematic Investment Plan is an excellent way to invest in mutual funds.

It helps you invest a fixed amount regularly, regardless of market conditions.

This instills financial discipline and reduces the impact of market volatility through rupee cost averaging.

You won’t need to worry about timing the market; SIP takes care of that for you.

Actively managed funds have the potential to outperform the market, especially when you stay invested over the long term.

When you invest through SIP in an actively managed fund, you get the expertise of a fund manager making strategic decisions to maximize returns.

Regular Funds Over Direct Funds

Now, let’s talk about the mode of investment.

Direct funds may seem attractive because they have lower expense ratios, but investing through regular funds offers benefits.

Regular funds give you access to the guidance of a Certified Financial Planner (CFP) or Mutual Fund Distributor (MFD).

Their advice can help you make informed decisions about your portfolio, especially if market conditions change.

A regular plan allows you to get ongoing support for your investment journey.

Investing through a Certified Financial Planner can help you align your portfolio with your financial goals.

They bring a deeper understanding of markets and can help optimize your asset allocation over time.

Flexibility in Fund Choices

While selecting funds, ensure that you pick flexible options.

Some funds are rigid and only invest in a certain category of stocks, which can limit their performance during different market cycles.

Flexible funds, like multi-cap funds, allow the fund manager to shift between large-cap, mid-cap, and small-cap stocks based on market conditions.

This flexibility can increase the fund’s chances of delivering consistent returns over time.

Equity Fund for Long-Term Goals

If your goal is long-term wealth creation, equity mutual funds are your best bet.

They generally outperform debt funds, FDs, and other conservative instruments over time.

Equity funds can offer better inflation-adjusted returns.

These funds invest in the stock market, which is why their potential for growth is higher.

However, they come with short-term volatility.

So, it’s important to have patience and a long-term perspective when investing in equity funds.

Growth or Dividend Option?

When investing in mutual funds, you will have to choose between the growth and dividend options.

Since you are young and likely looking to accumulate wealth, the growth option is more suited for you.

The growth option allows your investment to compound over time, as any profits earned by the fund are reinvested into the fund.

The dividend option provides periodic payouts, which is more suitable for investors seeking regular income.

In your case, you may not need regular income right now, so the growth option will help you build a larger corpus in the long run.

Taxation on Mutual Funds

When investing in mutual funds, it’s important to understand the tax implications.

For equity mutual funds, long-term capital gains (LTCG) are taxed at 12.5% after Rs 1.25 lakh.

Short-term capital gains (STCG) are taxed at 20%.

This means if you sell your equity mutual fund units before three years, the gains will be taxed as STCG.

If you hold the fund for longer than three years, any gains above Rs 1.25 lakh will be taxed as LTCG.

Since your investment horizon is long-term, this will work in your favor as you can take advantage of the LTCG benefit.

Systematic Withdrawal Plan (SWP) for Future Income

In the future, when you achieve your financial goals, you can convert your SIP investments into a Systematic Withdrawal Plan (SWP).

An SWP allows you to withdraw a fixed amount of money from your investment at regular intervals.

This is an effective way to create a steady stream of income from your mutual fund investment.

It can be particularly useful for retirement planning.

Since you are young, you have plenty of time to grow your investments before you need to rely on SWP.

Final Insights

At the age of 24, starting an SIP is a brilliant move.

Your time horizon allows you to take on equity market risks, which can result in higher long-term returns.

Diversify your investments across different fund categories to balance risk and return.

Actively managed funds offer better prospects than index funds due to the expertise of fund managers.

Choosing the growth option will help you accumulate wealth faster, as your profits will be reinvested.

Remember to stay invested for at least 5-7 years to maximize your returns.

As you move forward, work with a Certified Financial Planner to review your portfolio and make adjustments when necessary.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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