Dear Sir I hope you are doing well. I am seeking your independent opinion on a proposed switch of my existing Bajaj Allianz Goal Assure funds into the Nifty 500 Multicap Momentum Quality 50 Index Fund. My insurance advisor has recommended moving my entire current corpus (~₹10.3 lakh) into this fund gradually at ₹2 lakh per year. For your reference, here are the details of my current portfolio and SIP plans: Current Portfolio (as of latest statement): Fund Name Current Value (₹) Bond Fund 83,226.67 Equity Growth Fund - 2 1,88,982.12 Accelerator Mid Cap Fund - 2 36,080.50 Pure Stock Fund II 6,45,281.48 Small Cap Fund 51,194.39 Midcap Index Fund 29,979.86 Total Portfolio Value: ₹10,34,745.02 Current SIP Allocation (₹10,000/month): Accelerator Mid Cap Fund II: 2,700 Equity Growth Fund - 2: 3,000 Pure Stock Fund II: 2,300 Small Cap Fund: 2,000 Given my long-term investment goal (2035), I would like your expert advice on the following: The impact on portfolio diversification and risk if I move my entire corpus gradually into the Nifty 500 Momentum Fund. How this switch could affect the return of charges feature in my Goal Assure plan. Whether you would recommend a full switch as suggested, or a partial allocation, and why. Expected volatility and downside risk, especially considering the last 1-year market performance. Any hidden conditions or costs associated with this switch. I would greatly appreciate your independent and detailed guidance to help me make an informed decision. Thank you for your time and expertise.

Ans: Your investment portfolio reflects a diversified approach across various asset classes, including mutual funds and direct stocks. While your strategy appears well-rounded, here are some suggestions to consider for potential restructuring:

Active Mutual Funds Over Index Funds: Instead of Nifty 50 index fund and Nifty mid cap 250 index fund, consider allocating more towards actively managed mutual funds. Active funds have the potential to outperform the market indices by leveraging the expertise of fund managers to select high-quality stocks and navigate market fluctuations effectively.
Focus on Quality Active Funds: Look for actively managed funds with a track record of consistent performance and robust investment strategies. Funds like diversified equity funds, large-cap funds, and mid-cap funds with proven track records can offer growth potential while managing risk effectively.
Review Direct Stock Holdings: Evaluate your direct stock holdings and consider consolidating them into a more concentrated portfolio of high-quality companies with strong growth prospects and solid fundamentals. Diversification is essential, but too many stocks can dilute the impact of your best-performing investments.
Regular Portfolio Review: Periodically review your portfolio's performance and make adjustments as needed based on changing market conditions and your investment goals. Rebalancing your portfolio and reallocating investments to areas with better growth potential can help optimize returns over the long term.
Remember, while mutual funds offer diversification and professional management, direct stock investments can provide opportunities for higher returns but also come with higher risks. Consider consulting with a Certified Financial Planner to tailor your investment strategy to your specific financial goals, risk tolerance, and time horizon.

Ans: Your portfolio's growth is impressive, reflecting disciplined investing. Concerning underperforming funds, it's wise to reassess. For a consistently underperforming fund, gradual exit strategies like SWP or systematic transfers can mitigate risks. When considering new investments, whether to go lump sum or SIP depends on market dynamics and your comfort with volatility. Diversification across sectors and fund types can enhance portfolio resilience. Regular reviews ensure alignment with your financial goals.

Ans: It’s great to see you’ve stayed consistent with your investments over the past five years. Your current strategy has already delivered an impressive CAGR of around 16%. This indicates that your investment in large-cap components has performed well.

Your decision to consider diversifying into mid-cap and small-cap funds shows good insight, especially since the policy matures in 2034. This gives you ample time to ride out market fluctuations and benefit from potential growth.

Let’s assess your plan step by step.

Maintaining Large-Cap Investments
Steady Growth Potential: Large-cap funds are known for stability and relatively lower risk. Since your large-cap investments have done well, letting them grow further without switching out entirely is a wise move. Large-caps often provide steady growth over time, even in volatile markets.

Balanced Risk: As you’ve already allocated five years to large-cap funds, you have a solid base that carries lower risk compared to mid-cap or small-cap funds.

Mid-Cap and Small-Cap Fund Allocation
Potential for Higher Growth: Mid-cap and small-cap funds generally offer higher growth potential but come with increased volatility. Given that you have another 10 years for the policy to mature, adding these funds now could give you enough time to capture the potential upside of these categories.

Diversification Across Market Segments: By allocating the remaining five years to mid-cap and small-cap funds, you’re essentially diversifying across different market segments. This could help in balancing your overall risk, while providing higher growth opportunities compared to sticking only with large-cap funds.

Fund Switching Strategy: Switching some of your existing large-cap corpus into mid-cap and small-cap might reduce the stability of your portfolio. Instead, continuing with the large-cap corpus and allocating future premiums to mid-cap and small-cap funds may provide a more balanced approach.

Suggested Allocation Strategy
Divide Equally Across Funds: Splitting your contributions equally among large-cap, mid-cap, and small-cap funds seems like a balanced approach. You’ve mentioned an allocation of 25% each across pure-stock, equity growth, mid-cap, and small-cap funds. This could help in spreading out your risk while still allowing for growth opportunities.

Stay Consistent: Continuing with a steady SIP of Rs. 10,000 without increasing the amount for now is a good plan. Since you are already seeing good returns, consistency over time will be key to building your corpus further.

Evaluating Your Insurance Component
Insurance Coverage: Your current insurance coverage stands at Rs. 12 lakhs. Considering the policy is a combination of investment and insurance, it’s essential to evaluate if the coverage is adequate for your needs. Life insurance should primarily serve to protect your family, and if this amount falls short of your requirements, consider supplementing it with a term insurance plan.

Lock-in Period: Since there is an additional lock-in period of five years post the premium payment term, switching funds now and letting them grow for the next decade could be beneficial. You have ample time to ride out any short-term market volatility in the mid-cap and small-cap space.

Reviewing Your Fund Choices
Actively Managed Funds vs Index Funds: You’ve mentioned that your funds are market-linked, with some exposure to index funds. While index funds are often lower-cost options, actively managed funds can outperform them over time, especially in mid-cap and small-cap categories. Actively managed funds benefit from professional fund managers who can make strategic choices in response to market conditions, unlike passive index funds that simply track the market.

Switching to Actively Managed Funds: If a portion of your investments is in index funds, consider switching to actively managed mid-cap and small-cap funds. This will provide you with the advantage of professional management, especially in more volatile sectors like mid-caps and small-caps.

Final Insights
Long-Term Horizon: Your 10-year remaining investment window provides a good time horizon to take on the moderate risk associated with mid-cap and small-cap funds. However, always review your portfolio performance periodically to ensure it aligns with your long-term financial goals.

Balance Risk and Reward: By keeping your existing large-cap investments and diversifying into mid-cap and small-cap funds, you are effectively balancing risk with the potential for higher returns.

Insurance vs Investment: Review your insurance needs separately from your investment strategy. If the Rs. 12 lakh insurance coverage is insufficient, it’s advisable to take additional term insurance that provides higher coverage at a low cost.

It’s important to continue monitoring the performance of each fund and adjust the allocation if needed.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: Hi Rudolf,

Your current holding funds are not that great keeping in mind your time horizon and funds performance. If you keep investing in these funds, much return cannot be expected. Hence switch is necessary into good performing funds which can easily give you a return of 14-15% on an yearly basis.

The entire shift will definitely come with additional cost and taxes for you to pay but it will be better to shift now and move to better performing funds than keep invested in funds like these.

Funds like Assure Funds comes with very high hidden costs and commissions and there are much much better funds out there for loong term investment. One should never consider investing in funds like these.

However, it would be wise not to consult an Insurance Advisor for your investments. An insurance advisor is completely different from Investment Advisors. You should seek the help of a good professional who can help in choosing funds for your long term portfolio. A Certified Financial Planner (CFP) can help you with this regard.

Hence do consult a professional Certified Financial Planner - a CFP who can guide you with exact funds to invest in keeping in mind your age, requirements, financial goals and risk profile. A CFP periodically reviews your portfolio and suggest any amendments to be made, if required.

Let me know if you need more help.

Best Regards,
Reetika Sharma, Certified Financial Planner
https://www.instagram.com/cfpreetika/

Ans: Hi Rudolf,

Your current holding funds are not that great keeping in mind your time horizon and funds performance. If you keep investing in these funds, much return cannot be expected. Hence switch is necessary into good performing funds which can easily give you a return of 14-15% on an yearly basis.

The entire shift will definitely come with additional cost and taxes for you to pay but it will be better to shift now and move to better performing funds than keep invested in funds like these.

Funds like Assure Funds comes with very high hidden costs and commissions and there are much much better funds out there for loong term investment. One should never consider investing in funds like these.

However, it would be wise not to consult an Insurance Advisor for your investments. An insurance advisor is completely different from Investment Advisors. You should seek the help of a good professional who can help in choosing funds for your long term portfolio. A Certified Financial Planner (CFP) can help you with this regard.

Hence do consult a professional Certified Financial Planner - a CFP who can guide you with exact funds to invest in keeping in mind your age, requirements, financial goals and risk profile. A CFP periodically reviews your portfolio and suggest any amendments to be made, if required.

Let me know if you need more help.

Best Regards,
Reetika Sharma, Certified Financial Planner
https://www.instagram.com/cfpreetika/