I'm Investing 46k Monthly in SIP and Seen a Drop in Profit. Should I Reduce My Investment?

Ans: Hi Santosh, thanks for writing to me. You can continue investing in UTI Flexi Cap Fund and ICICI Blue Chip Fund as they are good funds. You can consider stopping investments in ICICI Prudential Nifty Next 50 Fund and begin investing the SIP amount in Nippon India Multi Asset Fund.

Ans: Hello Anil, thanks for writing to me.
The schemes you invest in are good schemes and you can continue investing in them.

Ans: Considering your current SIP portfolio, you may consider diversifying further across different asset classes and investment themes. You could explore adding SIPs in sectors like healthcare, consumer goods, or emerging markets for diversification. Additionally, consider increasing exposure to mid-cap or small-cap funds for potential higher returns over the long term. Reviewing your portfolio periodically with a financial advisor can help ensure it remains aligned with your financial goals and risk tolerance. Also, consider increasing your SIP amount gradually to maximize wealth accumulation over time.

Ans: Karthik, it's great that you’re thinking about long-term investments! Investing Rs 2 lakhs per month through SIPs is a solid strategy. Let’s break down your investment plan to maximize returns over 15 to 20 years.

SIP and Its Benefits
SIP, or Systematic Investment Plan, is a way to invest regularly in mutual funds. It helps in averaging the cost of investment and compounding returns over time. Investing consistently every month is a disciplined approach to wealth creation.

Sector Allocation for Diversification
Diversification is key to managing risk. Investing in various sectors ensures that you are not overly exposed to any single sector. Here’s a suggested allocation for your SIP:

Equity Funds (50%): These funds invest in stocks and have the potential for high returns.

Debt Funds (30%): These funds invest in bonds and are less volatile than equity funds.

Hybrid Funds (20%): These funds invest in both equity and debt, providing a balanced approach.

Equity Funds: Focus on Growth
Equity funds can be divided into different categories:

Large Cap Funds: Invest in large companies with a strong track record. These are relatively stable.

Mid Cap Funds: Invest in mid-sized companies. They offer a balance between growth and stability.

Small Cap Funds: Invest in smaller companies. These are riskier but can provide higher returns.

Debt Funds: Stability and Security
Debt funds provide stability to your portfolio. They are less volatile and offer steady returns.

Short-term Debt Funds: Suitable for short-term investments and less affected by interest rate changes.

Long-term Debt Funds: Suitable for long-term investments with a higher yield.

Hybrid Funds: Balanced Approach
Hybrid funds invest in both equity and debt. They provide a balanced risk-return profile.

Aggressive Hybrid Funds: Higher exposure to equity.

Conservative Hybrid Funds: Higher exposure to debt.

Sector-wise Allocation
To ensure diversification, allocate your SIP across different sectors. Here’s a suggested allocation:

Technology Sector (20%): High growth potential due to innovation and demand.

Healthcare Sector (20%): Steady growth due to continuous demand for healthcare services.

Financial Sector (20%): Banks and financial institutions are essential for economic growth.

Consumer Goods Sector (20%): Essential products with consistent demand.

Infrastructure Sector (20%): Growth potential due to ongoing development projects.

Expected Returns Over 15 to 20 Years
Investing Rs 2 lakhs per month over 15 to 20 years can yield significant returns due to the power of compounding. Let’s estimate the potential returns:

Without Inflation
If we assume an average annual return of 12% from equity funds, your investments can grow substantially. Over 15 years, Rs 2 lakhs per month can grow to around Rs 10 crores.

With Inflation
Considering an average inflation rate of 6%, the real value of your investments will be lower. However, disciplined investing and compounding can still help you achieve substantial growth. Over 20 years, even after adjusting for inflation, your investments can yield a significant corpus.

Disadvantages of Index Funds
Index funds simply mirror a market index and are passively managed. They don’t aim to outperform the market.

No Active Management: No professional fund manager making strategic decisions.

Limited Returns: Returns are limited to the market performance.

Benefits of Actively Managed Funds
Actively managed funds have fund managers who aim to beat the market by making strategic decisions.

Potential for Higher Returns: Fund managers can make decisions to outperform the market.

Risk Management: Active management helps in mitigating risks by adapting to market changes.

Disadvantages of Direct Funds
Direct funds require you to manage your investments without the help of a professional.

Lack of Guidance: No professional advice on which funds to invest in.

Time-Consuming: You need to spend time researching and managing your investments.

Benefits of Regular Funds Through CFP
Investing through a Certified Financial Planner (CFP) can be beneficial.

Expert Advice: Professional guidance on which funds to invest in.

Portfolio Management: Continuous monitoring and rebalancing of your portfolio.

Power of Compounding
Compounding is the process where the returns on your investments start generating returns. The longer you stay invested, the more your money grows.

Example: If you invest Rs 2 lakhs per month at 12% annual return, over 15 years, your corpus can grow exponentially.

Risk Assessment
Understanding and managing risks is crucial. Equity funds are subject to market risks, but they offer higher returns. Debt funds are safer but offer lower returns.

Diversification: Spreading investments across different funds and sectors helps in managing risks.

Regular Monitoring and Rebalancing
Regularly monitor your investments to ensure they align with your goals. Rebalancing your portfolio helps in maintaining the desired asset allocation.

Example: If one sector performs exceptionally well, rebalancing can help in locking gains and reducing exposure.

Tax Planning
Effective tax planning can save you money. Invest in tax-saving instruments to reduce your tax liability.

Example: Equity Linked Savings Schemes (ELSS) offer tax benefits under Section 80C.

Emergency Fund
Having an emergency fund is essential. This fund should cover 6-12 months of your living expenses.

Example: Keep this fund in a liquid form, such as a savings account or a liquid mutual fund.

Education Fund for Children
Setting up an education fund for your children ensures you can provide for their future.

Example: Invest in child-specific mutual funds or education plans designed to grow your money over time.

Insurance Coverage
Ensure you have adequate insurance coverage. Life insurance protects your family’s financial future, and health insurance covers medical expenses.

Example: Term insurance for life coverage and a comprehensive health insurance policy.

Lifestyle Adjustments
Consider making lifestyle adjustments to save more. Reducing unnecessary expenses can free up more money for investments.

Example: Prioritize spending on necessities and save the rest for future needs.

Generating Additional Income
Look for ways to generate additional income. This could be through freelance work, part-time jobs, or monetizing a hobby.

Example: Additional income streams can provide financial security and accelerate your investment goals.

Appreciating Your Efforts
Your commitment to planning for the future is commendable. It’s not easy to manage finances, especially with current challenges.

Example: Your determination to secure your family’s future and plan for retirement is truly inspiring.

Final Insights
Planning for long-term investments requires careful planning and disciplined execution. With your current resources, it’s achievable.

Example: Regular savings, smart investments, adequate insurance, and professional guidance are key.

Action Plan:

Start SIPs in diversified mutual funds.

Monitor and rebalance your portfolio regularly.

Ensure adequate insurance coverage.

Set up an emergency fund and education fund for children.

Make lifestyle adjustments and explore additional income sources.

Seek professional guidance from a Certified Financial Planner.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in