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New Investor Shankar Wants to Know if His SIP Investments for 10 Years Are Optimal

Ramalingam

Ramalingam Kalirajan  |6999 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jul 15, 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
SHANKRAPPA Question by SHANKRAPPA on Jul 09, 2024Hindi
Money

My name is Shankar. I' m investing 10,000 Per Month thru SIP. One is in Motilal Oswal Midcap 30 Fund for 5000. Second one is in SBI Countra Find for 5000 each month in phone pe I had invested. It's been two month I had started. First my concern is here can I go for these two funds for longer period like 10 years, I need suggestion for that. Second one is how much return can I expect for 10 years. I am planning to start one more mutual fund for mid cap for 5000 I need to know which fund is best for long run.

Ans: Dear Shankar,

Firstly, congratulations on taking a significant step towards your financial goals by starting your investments. It is heartening to see individuals like you take proactive steps towards securing their future.

You mentioned investing Rs 5,000 per month in the Motilal Oswal Midcap 30 Fund and another Rs 5,000 in the SBI Contra Fund. Both funds have their merits, but let's delve deeper to assess if they align with your long-term goals.

Evaluating Your Current Funds
Motilal Oswal Midcap 30 Fund

This fund focuses on mid-sized companies with potential for growth. Mid-cap funds can be quite rewarding, especially in a growing economy like India. However, they also carry higher risk compared to large-cap funds. It's commendable that you are willing to take on some risk for potentially higher returns.

SBI Contra Fund

This fund follows a contrarian strategy, investing in undervalued stocks. This approach can be beneficial during market corrections and downturns, as these stocks may bounce back strongly. It provides a good balance to your portfolio by diversifying your investment style.

Long-Term Viability
For a ten-year investment horizon, these funds could be suitable, provided you are prepared for the market's ups and downs. Long-term investments in equity mutual funds generally yield better returns, as they smooth out short-term volatility. Staying invested for ten years can help you benefit from compounding and market growth.

Expected Returns
Estimating returns can be tricky as they depend on various factors, including market conditions, economic growth, and fund management. Historically, mid-cap funds have delivered 12-15% annual returns over the long term. Contrarian funds, while less predictable, can also yield substantial returns if their strategy pays off.

However, it is crucial to remember that past performance does not guarantee future results. Keeping realistic expectations and staying invested through market cycles is key.

Adding a New Mid-Cap Fund
Your interest in starting another Rs 5,000 monthly SIP in a mid-cap fund is a wise decision, given your long-term horizon. Mid-cap funds can be an excellent addition to your portfolio, offering potential for higher growth.

Benefits of Actively Managed Funds
Since you are considering mid-cap funds, it is essential to highlight the benefits of actively managed funds over index funds. Actively managed funds can adapt to market conditions and invest in promising companies, whereas index funds simply replicate a market index. This flexibility can lead to better performance, especially in the mid-cap segment where stock selection is crucial.

Recommendations for Mid-Cap Funds
Selecting the right fund requires thorough research. Here are some factors to consider when choosing a mid-cap fund:

Fund Performance: Look at the fund’s performance over different market cycles.
Fund Manager’s Track Record: An experienced and skilled fund manager can make a significant difference.
Expense Ratio: Lower expense ratios can improve net returns.
Fund House Reputation: Choose funds from well-established and reputable fund houses.
Considering these factors will help you make an informed decision. Consulting a Certified Financial Planner (CFP) can also provide personalized advice based on your risk tolerance and financial goals.

General Investment Tips
Diversification
Diversification is crucial to manage risk. Your current investments in mid-cap and contrarian funds provide a good mix. However, you might want to consider adding large-cap or multi-cap funds in the future for better balance.

Regular Review
Periodic review of your investments is essential. Market conditions and personal financial goals can change, requiring adjustments to your investment strategy.

Staying Informed
Keep yourself informed about market trends and economic indicators. This knowledge can help you make better investment decisions.

Emotional Discipline
It’s easy to get swayed by market volatility. Maintaining emotional discipline and staying invested during market downturns is vital for long-term success.

Potential Pitfalls of Direct Funds
Direct funds might seem attractive due to lower expense ratios, but they have some disadvantages. Direct funds require continuous monitoring and management, which can be time-consuming and challenging. Investing through a CFP can provide professional management, regular reviews, and tailored advice, ensuring your investments align with your goals.

Final Insights
Your current investment strategy is promising, with a good mix of mid-cap and contrarian funds. These funds have the potential to deliver substantial returns over a ten-year period, provided you stay invested and maintain discipline.

Starting another mid-cap fund is a prudent decision, given your long-term horizon. Carefully selecting an actively managed mid-cap fund can further enhance your portfolio's growth potential.

Remember to diversify, review your investments regularly, and consult a Certified Financial Planner for personalized advice. Your commitment to investing Rs 10,000 monthly through SIPs is commendable, and with the right strategy, you can achieve your financial goals.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner,

www.holisticinvestment.in
DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.
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Hello sir , I am 40 years old , I have below investment. FD - 60 lacs. Mediclaim - 10 lacs NPS - 50K Per year PPF - 150K Per Year I am investing in below mutual funds through SIP. ( 22K) ICICI balanced Advantage 2K HDFC Balanced Advantage 3K Tata Midcap and Largecap 3K Nippon India Small Cap 2K Motilal Midcap 2K ICICI Prudential Commodities 5K Quant Small Cap 5K Is it good funds for long terms ( Horizon of 8/10 years) ? I want to invest more 10K in SIP then which fund should I chose ? Thanks
Ans: It's great to see your disciplined approach towards investments. Let's assess your portfolio and potential additions:

Your current SIP portfolio seems well-diversified across different market segments, which is beneficial for long-term growth.
Given your investment horizon of 8 to 10 years, these funds offer a mix of growth potential and stability.
Considering adding another 10K to your SIP, you may want to focus on funds that complement your existing portfolio.
Look for funds with a track record of consistent performance and a strong investment thesis aligned with your financial goals.
Consider funds that provide exposure to sectors or themes with potential for future growth.
Consult with a Certified Financial Planner to evaluate your risk tolerance, financial goals, and investment strategy before making any changes.
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Hello sir , I am 40 years old , I have below investment. No EMI No Loan. FD - 60 lacs. Mediclaim - 15 lacs ( 20K per year) NPS - 50K Per year ( Since last 5 years) PPF - 150K Per Year ( Since Last 5 years) I am investing in below mutual funds through SIP. ( 32K Total) - Since last 3 Years ICICI balanced Advantage 2K HDFC Balanced Advantage 3K Tata Midcap and Largecap 3K Nippon India Small Cap 2K Motilal Midcap 2K ICICI Prudential Commodities 5K Quant Small Cap 5K HDFC Top 100 5K Parag Parikh Flexi 5K Is it good funds for long terms ( Horizon of 8/10 years) ? My income is arround 1.80 lac monthly , no home loan and emi. Shall I increase my SIP and my concern is 60 lacs is in FD ..Please suggest. Plus I want to invest 3 lacs lumpsum. Where to invest ? For long term 5/10 years.
Ans: Hello;

You may reallocate your sip portfolio(request to increase it to 50 K monthly sip)as follows:

1. PPFAS flexicap fund: 15 K
2. Kotak Emerging Opportunities Fund: 15 K
3. Nippon India Small cap fund: 10 K
4. Sundaram Mid Cap fund: 10 K

All growth options.

For a 10 year horizon this is a good mix. Your allocation to PPF and NPS(non equity portion) are debt allocations in your overall asset allocation so no need for BAF & commodities here.

You may invest your FD corpus of 60 L in a equity savings type mutual fund (low to moderate risk) but better than FD returns.

It is recommended that you invest lumpsum of 3 L in Kotak Gold FOF/ETF.

After end of 10 years you may have combined corpus of 5.4 Cr. which may yield you a monthly income of 1.89 L (post-tax) if you buy an immediate annuity for your corpus. 6% annuity rate considered.

(Returns assumed as given: PPF-6.9%, NPS-9%, 3 yr SIP-10%, 10 year sip-13%, Gold-7%, Equity Savings Fund -9%)

Happy Investing;

*Investments in mutual funds are subject to market risks. Please read all scheme related documents carefully before investing.

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