Should I Sell My Declining Aditya Birla and SBI PSU Mutual Funds?

Ans: Hello and thanks for writing to me. The funds you invest in are good funds.

If you state your objectives and risk appetite, I may share other schemes based that may be suitable for you.

Ans: Given your current investment of 34 lakhs in SBI mutual funds, it's crucial to review your portfolio's performance and diversification. Check the fund's performance against its benchmark and peers. Consider rebalancing if any fund weightage has significantly increased or decreased from your initial allocation. It's also wise to consult a financial advisor for personalized guidance based on your financial goals and risk tolerance.

Ans: You are actively investing, which is an excellent habit. However, managing too many funds can dilute returns and complicate tracking. Here's a detailed evaluation of your portfolio and suggestions for improvement.

Observations About Your Current Investments
Quant Funds’ Performance: Quant mutual funds have been volatile recently. Market phases can impact returns in the short term. However, their active management style often delivers strong long-term results. Reviewing their performance regularly is key.

Over-Diversification: Your portfolio has too many mutual funds, leading to overlapping investments. This makes tracking performance challenging and reduces overall returns. Consolidation is advisable.

Direct Mutual Funds: While direct plans have lower expense ratios, they require regular monitoring. If you lack time for constant tracking, investing through a Certified Financial Planner (CFP) can be beneficial.

Stock Investments: Your stocks are spread across sectors. While some are strong companies, direct stock investments demand active monitoring and deep analysis. Diversifying further into mutual funds might be better aligned with your long-term goals.

Tax-Saving Funds (ELSS): You have three ELSS funds. This creates unnecessary duplication. A single, well-performing ELSS fund is sufficient for tax-saving needs.

Goal Alignment: Your goal is 10 years. For this horizon, equity-heavy investments are ideal, but they must be consolidated for better returns.

Key Recommendations
1. Consolidate Your Mutual Funds
Having too many funds spreads your investments thinly. Instead, focus on 5–7 funds across categories. This will provide diversification without duplication.

Suggested allocation categories:

Large-Cap: One fund to provide stability and steady returns.
Flexi-Cap: One or two funds for flexibility in market capitalization.
Mid-Cap and Small-Cap: Two funds to capitalise on growth potential.
ELSS: One fund for tax-saving benefits.
Consolidation will reduce overlaps and improve overall efficiency.

2. Retain or Exit Quant Funds?
You can retain Quant Small Cap and Quant Flexi Cap if their long-term fundamentals are strong. Exit from others if performance consistency or fund overlap is an issue. Diversify with funds from other AMCs for better balance.

3. Reduce Stock Exposure
Direct stock investments can be risky without regular tracking. Consolidate your stocks and invest the proceeds into diversified mutual funds. This will reduce risk and improve your portfolio’s stability.

4. Monitor Fund Performance
Review mutual fund performance at least annually. Use metrics like returns, expense ratios, fund manager track record, and consistency in delivering returns.

5. Opt for Professional Guidance
Consider investing in regular funds through a CFP. They can provide personalised strategies, regular reviews, and rebalance your portfolio as needed.

Action Plan for Portfolio Restructuring
Step 1: Exit and Consolidate
Exit from underperforming or duplicate funds.
Retain well-performing funds across categories.
Choose funds with strong track records and low volatility.
Step 2: Suggested Fund Allocation
Allocate Rs 40,000 monthly across consolidated categories:

Large-Cap Fund: 25% allocation for stability.
Flexi-Cap Fund: 25% allocation for market cap flexibility.
Mid-Cap Fund: 20% allocation for growth potential.
Small-Cap Fund: 20% allocation for higher returns.
ELSS Fund: 10% allocation for tax-saving needs.
Step 3: Consolidate Stocks
Exit some stocks and reinvest the amount in mutual funds. Focus on reducing sector concentration.

Step 4: Regular Reviews
Review your portfolio semi-annually. Assess market conditions and align your portfolio with your goals.

Disadvantages of Index Funds and Direct Plans
Index Funds
No Active Management: Index funds lack the ability to outperform markets.
Market Dependent: They perform only as well as the index, with no defensive strategy during downturns.
Direct Plans
Higher Effort: Direct plans demand continuous monitoring.
Lack of Guidance: Regular plans via a CFP provide tailored advice, which direct plans do not.
Tax Implications
Keep in mind the new capital gains tax rules:

Equity Funds: LTCG above Rs 1.25 lakh is taxed at 12.5%. STCG is taxed at 20%.
Debt Funds: Gains are taxed as per your income slab.
Consider tax-efficient withdrawals when restructuring your portfolio.

Final Insights
You are on the right track by actively investing for your goals. However, managing fewer, well-performing funds can simplify your journey. Consolidating your portfolio will improve returns, reduce redundancy, and make monitoring easier.

Focus on aligning your investments with your 10-year goal. Use this opportunity to balance risk and returns effectively.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

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

Ans: Your commitment to investing is commendable. Let's evaluate your current mutual fund portfolio and provide guidance tailored to the current market conditions.

Current Market Overview

As of February 2025, the Indian equity market has experienced notable volatility. Benchmark indices like the Nifty 50 and S&P BSE Sensex have declined by approximately 10-11% from their peaks in September 2024. Mid-cap and small-cap segments have faced even sharper corrections, with the BSE Small Cap Index and BSE Mid Cap Index falling by 18.3% and 17.9%, respectively.
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Analysis of Your Portfolio Composition

Your portfolio includes investments in various mutual funds across different categories. Here's a breakdown:

Small-Cap Funds: A significant portion of your investments is allocated to small-cap funds. While these funds offer high growth potential, they also come with increased volatility, especially during market downturns.

Large-Cap Funds: You have exposure to large-cap funds, which are generally more stable and resilient during market fluctuations.

Thematic and Sectoral Funds: Your investment in thematic funds focuses on specific sectors, which can be cyclical and may experience periods of underperformance.

Recommendations

Review and Rebalance Your Portfolio

Assess Overlap: Evaluate the degree of overlap between your funds to ensure diversification. Tools like the mutual fund portfolio overlap tool can help identify common holdings.
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Adjust Allocations: Consider reducing exposure to small-cap funds if they constitute a large portion of your portfolio. Reallocating to large-cap or diversified equity funds can provide more stability.

Stay Invested with a Long-Term Perspective

Market Corrections Are Normal: Short-term volatility is inherent in equity markets. Historically, markets have rebounded over time, rewarding patient investors.

Avoid Panic Selling: Withdrawing investments during downturns can lock in losses. Maintaining your investments allows you to benefit from potential market recoveries.

Continue Systematic Investment Plans (SIPs)

Rupee Cost Averaging: Continuing SIPs during market lows allows you to purchase more units at lower prices, potentially enhancing long-term returns.

Discipline Over Timing: Regular investments mitigate the need to time the market, fostering a disciplined approach.

Consult a Certified Financial Planner

Personalized Advice: A Certified Financial Planner can provide guidance tailored to your financial goals, risk tolerance, and investment horizon.

Tax Efficiency: Professional advice can help optimize your portfolio for tax efficiency, especially with recent changes in capital gains taxation.

Final Insights

In the current market scenario, it's advisable to stay invested and avoid making hasty decisions based on short-term volatility. Rebalancing your portfolio to align with your risk tolerance and financial goals, while continuing with disciplined investment strategies like SIPs, can position you well for long-term wealth creation.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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