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Should I Invest in SIP for Mutual Funds with Rs. 54,000 for 7 Years?

Ramalingam Kalirajan |7838 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Oct 07, 2024

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

Question by Rajesh on Oct 05, 2024Hindi

I want to invest Rs54000 for next 7 years in SIP of Mutual funds. Pls suggest best funds

Ans: With a 7-year investment horizon, a balanced mix of funds is essential. This allows exposure to both growth opportunities and stability, ensuring your investment can grow while managing risks.

Suggested Portfolio Composition
Equity Mutual Funds (70% Allocation)
Equity mutual funds can help you achieve higher returns over the long term. Given the 7-year time frame, investing in different categories of equity funds makes sense.

Large Cap Funds (25%)
Large-cap funds are relatively stable and invest in established companies. This brings consistent returns while mitigating risk.

Mid Cap Funds (20%)
Mid-cap funds offer higher growth potential but come with slightly more risk. These funds provide a balance between large and small caps.

Small Cap Funds (15%)
For long-term investors, small-cap funds can offer high growth, though they may be volatile. Allocating a smaller portion to small caps ensures you benefit from potential high returns.

Flexi Cap or Multi-Cap Funds (10%)
These funds invest across different market capitalisations, offering flexibility and diversification. The fund manager can adjust the investment based on market conditions, ensuring better risk management.

Debt Funds (20% Allocation)
Debt funds offer stability and lower risk. Adding them helps manage volatility, ensuring your portfolio doesn’t suffer significant losses during market downturns.

Medium Duration Funds (10%)
These funds typically offer a balance between risk and return over a medium-term horizon. They invest in bonds with a maturity of 3 to 5 years, providing moderate returns and low risk.

Dynamic Bond Funds (10%)
These funds adapt to changing interest rate environments, providing flexible returns. This flexibility helps during changing market conditions.

Hybrid Funds (10% Allocation)
Hybrid funds invest in a mix of equity and debt instruments, offering a balance of growth and stability. These funds work well in your portfolio, blending equity and debt in one product.

Reviewing Your Portfolio Annually
It’s great that you’ve already experienced the benefits of holding mutual funds for more than five years. When reviewing your portfolio annually, consider the following:

Performance Consistency
Check if your funds are performing well consistently over 3-5 years. If a fund consistently underperforms its peers and the benchmark, it may be time to reconsider.

Fund Manager Changes
A change in the fund manager could affect the fund’s strategy and performance. Monitor any such changes.

Market Conditions
Your asset allocation might need adjustment based on market conditions. For example, if equity markets are peaking, you might reduce exposure to equities.

Disadvantages of Direct Funds
Direct funds may offer lower expense ratios, but they require more research and active monitoring from your side. Without the guidance of a Certified Financial Planner (CFP), you may miss important insights. Regular funds, where you invest through a Mutual Fund Distributor (MFD) with CFP credentials, provide personalised advice and periodic reviews.

Final Insights
Your disciplined approach to investing is commendable. However, diversifying your investments as per your risk appetite and ensuring a balanced portfolio will maximise your returns over the 7-year period. Make sure to review your portfolio annually to stay aligned with your goals.

Best Regards,

K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

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