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How To Choose the Best Mutual Funds for My Portfolio?

Ramalingam

Ramalingam Kalirajan  |8106 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Mar 11, 2025

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
Subir Question by Subir on Mar 11, 2025Hindi
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Hello Sir, I have invested in the following Mutual Funds: Tata Hybrid Equity Fund, Tata Banking & Financial Funds, Axis Blue Chip, Axis ELSS Tax Saver Fund, Axis Global Equity Alpha, Axis Small Cap, Mirae Asset ELSS Tax Saver, Quant Active Fund, Quant ELSS Tax Saver Fund, Birla Focused Equity Fund, Kotak Flexicap Fund, HSBC Value Fund, SBI Direct Bond Fund, SBI Magnum Income Plan, SBI Banking&Financial Services, SBI Blue Chip, SBI Flexicap Fund, DSP ELSS Tax Saver Fund. Pls. advise if I hold on to them or lose some of them?

Ans: Your mutual fund portfolio is diverse, but some consolidation can improve efficiency. Below is an analysis of key points to help you decide which funds to keep and which to exit.

Key Observations
Overlapping Funds: Multiple funds from the same AMC in similar categories reduce diversification.

Sector-Specific Funds: Banking and financial sector funds add concentration risk.

Too Many ELSS Funds: Excessive ELSS funds may reduce focus on wealth creation.

Global Fund Exposure: International funds can diversify risks but may underperform in volatile global conditions.

Bond Funds for Stability: While bond funds offer stability, they may limit long-term growth.

Recommended Actions
Equity Funds: Focus on Quality Over Quantity
Retain 1-2 large-cap funds for stability and consistent returns.

Keep 1 flexi-cap fund for dynamic investment across market caps.

Retain 1-2 ELSS funds if you require tax savings; avoid over-diversification in this category.

Hold 1 small-cap fund for aggressive growth, but limit exposure to manage volatility.

Avoid multiple funds with similar strategies as they create redundancy.

Sector Funds: Reduce Concentration Risk
Reduce exposure to banking and financial services funds. These are cyclical and can underperform during economic downturns.

Instead, focus on diversified equity funds that include financial sector stocks.

Global Equity Funds: Moderate Allocation
Retain your global fund if you seek international diversification.

Limit exposure to less than 10% of your total portfolio to reduce currency risk.

Bond Funds: Stability with Limited Growth
Retain 1 bond fund for liquidity needs or near-term expenses.

Avoid excessive debt fund investments if your goal is long-term wealth creation.

Portfolio Optimisation Strategy
Aim for 7-9 well-chosen funds instead of spreading investments too thin.

Focus on a mix of large-cap, flexi-cap, mid-cap, and small-cap funds for balanced growth.

Retain one global fund for international exposure.

Include one debt fund for short-term financial needs.

Exit funds with similar investment strategies to improve clarity and focus.

Tax Efficiency Considerations
Consider the latest capital gains tax rules when redeeming equity funds.

Long-term capital gains (LTCG) above Rs 1.25 lakh are taxed at 12.5%.

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

For debt funds, both LTCG and STCG are taxed as per your income slab.

Plan redemptions strategically to minimise tax impact.

SIP Strategy
Continue SIPs in high-performing equity funds with strong track records.

Increase SIPs in funds aligned with your long-term goals.

Reduce or stop SIPs in overlapping or underperforming funds.

Final Insights
Your portfolio requires better alignment with your financial goals. By reducing fund overlap and sector-specific exposure, you can improve returns and risk management. Focus on a leaner, more diversified portfolio with a strong mix of equity and debt funds.

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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Dear Sir, I have following mutual funds: Please comment whether I shall sell or retain. ABSL Equity fund growth HDFC Equity fund growth ICICI Pru Nifly Index Growth ICICI Pru Infrastructure Growth SBI Focused Equity Fund Growth    UTI Master Share UTI MNC Fund Magnum Taxgain Sundaram Infrastructure ABSLMidcap Growth Name of the Fund Name of the Fund RankMF Star Rating ABSL Equity fund growth Equity - Multi Cap Fund 4 HDFC Equity fund growth Equity - Multi Cap Fund 4 ICICI PruNifly Index Growth Index Funds - Nifty 4 ICICI Pru Infrastructure Growth Equity - Sectoral Fund - Infrastructure 2 SBI Focused Equity Fund Growth Equity - Focused Fund 4 UTI Master Share Equity - Large Cap Fund 5 UTI MNC Fund Equity - Thematic Fund - MNC 3 Magnum Taxgain Equity - ELSS 3 Sundaram Infrastructure Equity - Sectoral Fund - Infrastructure 2 ABSLMidcap Growth Equity - Mid Cap Fund 2
Ans: You may continue with funds with 4 and 5 star rated, sector funds to be avoided and good funds in Multicap , Focused and Mid cap should be invested in.

Midcap: Suitable option considering quality and value for money at present levels is DSP Midcap and Axis Midcap

Multicap: Suitable options considering quality and value for money at present levels are UTI Equity Fund, Axis Multicap, Motilal Oswal Multicap 35

Focused: Suitable options considering quality and value for money at present levels are Axis Focused 25 and Motilal Oswal Focused 25

ELSS: Suitable options considering quality and value for money at present levels are Motilal Oswal Long Term Equity – Growth

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Ramalingam

Ramalingam Kalirajan  |8106 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jan 16, 2025

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I am currently investing in 9 mutual funds : 1. Quant small cap 1000 2. Nippon small cap 3500 3. Motilal mid cap 2000 4. Parag parikh flexi cap 2500 5. Icici nasdaq 100 1000 6. Quant large and mid cap 2000 7. Hdfc pharma and healthcare fund 2000 8. Icici technology fund 1000. Investing since may 2024 . Please advice if i shud hold or change. returns till now 0%
Ans: It’s great that you have started investing in mutual funds. You have chosen a variety of funds, but your returns are currently at 0%. This could be due to several factors, including market conditions, asset class performance, and time horizon. Let’s evaluate your portfolio and determine whether you should hold or change your investments.

Portfolio Breakdown
You have spread your investments across multiple asset classes: small-cap, mid-cap, flexi-cap, sectoral funds, and international exposure. Here’s a quick look at the funds you have invested in:

Small-Cap Funds: Quant Small Cap and Nippon Small Cap
Mid-Cap Funds: Motilal Mid Cap
Flexi-Cap Fund: Parag Parikh Flexi Cap
Sectoral Funds: HDFC Pharma and Healthcare Fund, ICICI Technology Fund
International Exposure: ICICI Nasdaq 100
Large & Mid-Cap Fund: Quant Large and Mid Cap
This diversified approach is beneficial in balancing risks across various sectors. However, the question arises: is this the most efficient allocation for your goals?

Fund Performance and Timing
Your funds have delivered 0% returns so far. The performance could reflect the current market conditions. Markets, especially equity markets, can be volatile in the short term, and returns take time to materialize. The 0% return does not necessarily indicate a poor investment choice.

Given that you’ve been invested only since May 2024, this is still a relatively short period. Mutual fund returns often need 3-5 years to show significant growth, especially in small-cap and sectoral funds.

Key Observations
Small-Cap Funds:

Small-cap funds tend to be more volatile but have the potential for high returns over time. They can experience significant fluctuations, especially in the short term.
If you have a long-term horizon, holding on to them could be wise. However, ensure your exposure to small-cap funds does not exceed your risk tolerance.
Mid-Cap Funds:

Mid-cap funds have the potential to offer balanced returns by being less volatile than small-cap funds.
These funds usually work well for medium-term investments (5-7 years).
Flexi-Cap Funds:

Flexi-cap funds are diversified and invest across market caps. Parag Parikh Flexi Cap is generally known for strong long-term performance.
Holding this fund makes sense for stability and diversification in your portfolio.
Sectoral Funds:

Sector-specific funds like pharma and technology are more volatile and can offer high returns during industry booms.
However, they are risky and should ideally make up a small portion of your portfolio (not more than 10-15%).
You may want to reassess if these are essential to your portfolio or if diversification into broader funds is better.
International Exposure:

ICICI Nasdaq 100 offers exposure to international markets, particularly the US tech sector.
While international funds have growth potential, they are subject to currency risks and economic cycles outside India. Diversifying internationally can be a good move, but it should be balanced.
Large & Mid-Cap Funds:

These funds strike a balance between growth and stability. They offer exposure to both large-cap and mid-cap stocks, providing both safety and growth potential.
Quant Large and Mid Cap can serve as a stabilizer in your portfolio.
Evaluating Your Current Portfolio
Diversification: Your portfolio is diversified across small-cap, mid-cap, flexi-cap, sector-specific, and international funds. This is generally a good approach to managing risk.
Sectoral Overload: The allocation to sectoral funds (HDFC Pharma and ICICI Technology) could be reduced. These funds can underperform if their respective sectors face a downturn.
Risk Profile: Given your relatively young age (24 years) and the long-term nature of your retirement goal, it’s acceptable to have a higher risk exposure. However, the current allocation might have too much focus on small-cap and sectoral funds, which could be volatile in the short term.
Performance Tracking: Your portfolio’s performance should be reviewed annually. If funds show consistent underperformance, you might need to switch to better-performing funds.
Investment Strategy Moving Forward
Reduce Sectoral Exposure:

Consider reducing investments in sectoral funds like pharma and technology, as they are highly dependent on sector-specific factors and market cycles.
Reallocate this amount to diversified flexi-cap or large-cap funds.
Increase Allocation to Mid and Large-Cap Funds:

Mid-cap and large-cap funds are generally less volatile compared to small-cap funds. These will provide stability to your portfolio.
Flexi-cap funds can also provide exposure to a broader market, including large, mid, and small-cap stocks.
Increase Exposure to Actively Managed Funds:

Actively managed funds, especially in large and mid-cap categories, tend to perform better over the long run due to the active decision-making involved. These funds are more focused on stock selection and can mitigate risks better than passive options.
Review the International Fund Exposure:

ICICI Nasdaq 100 could be beneficial for diversification, but the US market has risks. A better approach might be exposure to emerging markets or other international funds to balance risk.
Regular Investment Review:

Review your portfolio every 6 months or annually to ensure it is aligned with your goals.
Track the performance of each fund. If a fund consistently underperforms, it may be time to exit and switch to a better alternative.
Asset Allocation Recommendation
Equity Funds: 60-70%
Diversify across large-cap, mid-cap, and flexi-cap funds.
Debt Funds: 20-30%
For stability and regular income, consider allocating some portion to debt funds or hybrid funds.
International Funds: 5-10%
Consider reducing exposure to sector-specific international funds and increase exposure to broad-based international funds.
Final Insights
Your portfolio has the potential to perform well over the long term, but there are some areas that could benefit from fine-tuning. The key is to balance between high-risk, high-reward investments (small-cap, sectoral funds) and more stable, diversified funds (mid-cap, large-cap, flexi-cap). Regular reviews and adjustments, along with maintaining discipline in SIPs, will help you achieve your financial goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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

..Read more

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Asked by Anonymous - Mar 19, 2025Hindi
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I have 4+ years of experience in IT as a automation enginner and currently I am studying Mtech as integrated program along with my work. But it seems like the pressure on completion of lab, assignments, quiz, midsem and main sem is becoming a burden along with my current work life. Now I regret taking the decision of being a part of Integrated learning. Also I have signed an agreement that if I quit midway I have to pay 2.4lac. Currently I am in 1st semester and it is really a tough journey ahead. What should you think I do. Day by day I am losing motivation. Should I continue this journey or should I focus more on my work. Please help.
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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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