Investing $85000 a month? 2 in liquid funds - any good?

Ans: I appreciate your proactive approach towards investments and savings. Your strategy appears well thought out. Let's refine it for optimal returns and risk management, considering your current portfolio and the new investments you’re planning.

 

Existing SIP Portfolio Review
You mentioned investing Rs 1 lakh monthly via SIPs in 5 funds, with 3 major SIPs over Rs 20,000 each. It's excellent that you have already built a systematic investment habit. This will ensure consistent wealth accumulation over the long term.
 

However, to make the most of your investments, let’s periodically review the performance of your existing SIPs. Evaluating them every 12-18 months can help you rebalance if needed. Ensure that your portfolio is aligned with your long-term financial goals, risk tolerance, and current market dynamics.
 

While it’s great to invest through SIPs, also consider diversifying within different sectors and themes. This can help in mitigating sector-specific risks.
 

Allocation of Rs 8.5 Lakh Corpus
Based on your plan to invest Rs 8.5 lakh, with Rs 2 lakh in liquid funds and the rest in thematic or NextGen funds, here’s a structured approach:

 

1. Liquid Funds Allocation (Rs 2 lakh):

Allocating Rs 2 lakh to liquid funds is a prudent move. It ensures that you have access to liquidity for any short-term needs or emergencies. Liquid funds are ideal for parking surplus cash, especially with their low-risk profile and better returns compared to a savings account.
 

Liquid funds also offer quicker access to your funds, usually within 24 hours on business days, making them ideal for managing emergency expenses.
 

However, be aware of the taxation on liquid funds. As per the new tax rules, both LTCG and STCG gains are taxed as per your income tax slab.
 

2. Investment in NextGen Thematic Funds (Rs 6.5 lakh):

You are considering investing the remaining Rs 6.5 lakh in emerging sectors like drones, EVs, AI, green energy, solar, semiconductors, and more. This is a smart approach to capture future growth trends, but it comes with certain considerations:

 

High Growth Potential: Thematic funds focused on NextGen technologies offer high growth potential. Sectors like AI, EVs, hydrogen, and semiconductors are poised for exponential growth in the next decade. Investing in these sectors can help you tap into the technological revolution.
 

Diversification: Ensure you diversify your investments across various themes rather than concentrating in a single sector. For instance, a combination of EVs, AI, green energy, and manufacturing can balance out sector-specific risks. This way, if one sector underperforms, gains from another can offset the loss.
 

Risk Factor: Thematic funds are generally riskier than diversified equity funds because they are sector-focused. While they can provide higher returns, they also carry higher volatility. It's crucial to assess your risk appetite before committing a large portion of your corpus to these funds.
 

Investment Horizon: Thematic funds should be approached with a long-term investment horizon (5-7 years or more). These sectors may take time to fully mature and deliver substantial returns. Patience will be key to reaping benefits.
 

Tax Implications: Given the new tax rules, any LTCG above Rs 1.25 lakh from equity-oriented mutual funds will be taxed at 12.5%, while STCG will attract a 20% tax rate. This is something to keep in mind when planning your investments and withdrawals.
 

Key Strategies for Thematic Investing
Phased Investment Approach: Instead of deploying the entire Rs 6.5 lakh at once, consider a systematic transfer plan (STP) into thematic funds over the next 6-12 months. This strategy will help average out market volatility and enhance your entry points.
 

Review and Monitor: Thematic investments require close monitoring due to their cyclical nature. Regularly reviewing these investments will help you adjust your portfolio based on the evolving market landscape.
 

Avoid Overlap: If you are already holding diversified equity funds, ensure your thematic investments do not overlap with your existing portfolio. Overlapping sectors can increase concentration risk and reduce the diversification benefits.
 

Why Not Index or Direct Funds?
You have wisely chosen actively managed funds over index or direct funds. Here’s why this decision works better:

 

Actively Managed Funds: These funds provide the flexibility of stock selection and reallocation based on market conditions. Fund managers actively manage the portfolio to optimize returns, especially in uncertain markets. Actively managed funds can outperform index funds during volatile phases.
 

Direct vs. Regular Plans: Investing through a Certified Financial Planner (CFP) can add immense value. Regular plans offer personalized advice, timely portfolio reviews, and tax-efficient strategies. The slightly higher expense ratio of regular plans is justified by the guidance and insights a professional provides.
 

Tax Planning: A CFP can help you optimize your tax liabilities, especially considering the changes in capital gains tax rules. Regular rebalancing and strategic fund selection can save you money in the long run.
 

Additional Considerations
Emergency Fund: Ensure you have at least 6-12 months of expenses set aside as an emergency fund. This amount can be parked in liquid funds or short-duration debt funds for safety and liquidity.
 

Insurance Protection: While your focus is on wealth creation, ensure adequate life and health insurance coverages. This will protect your investments in case of unforeseen events.
 

Goal-Based Investments: Align your investments with specific financial goals, such as children's education, retirement, or a new home. Goal-based planning helps in maintaining discipline and prioritizing your financial objectives.
 

Avoid Investment-Linked Insurance Plans (ULIPs): If you hold ULIPs or investment-cum-insurance plans, consider surrendering them and reinvesting the proceeds in mutual funds. Mutual funds are more transparent, cost-effective, and better for long-term wealth accumulation.
 

Risk Management and Diversification
Ensure that your overall portfolio is diversified across asset classes, including equity, debt, and gold. This will cushion your investments against market volatility.
 

Thematic funds can form around 10-15% of your overall portfolio. The remaining investments should be in diversified equity, debt funds, or hybrid funds for stability.
 

Review your asset allocation strategy annually or whenever there’s a significant change in your financial situation or market conditions.
 

Finally
You have a clear vision for your investments, which is commendable. By strategically allocating your funds, diversifying across emerging themes, and reviewing your portfolio periodically, you can achieve your financial goals more effectively.

Your focus on future technologies like drones, EVs, AI, and green energy is aligned with current market trends, but ensure you are prepared for the volatility these sectors may experience. Having a balanced approach, guided by a Certified Financial Planner, can significantly enhance your returns and provide peace of mind.

 

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment