Hi Sir. my sister have invested in following mutual fund in previous 2 years. please advise...thanks 1) Axis Midcap fund 2)Bandhan Sterling value fund 3)Canara Robecco emerging equities fund 4)DSP small cap fund 5)ICICI pru technology fund 6)Mirae asset healthcare fund 7)Nippon India Taiwan equity fund 8)PGIM India global equity opportunities fund 9)UTI flexi cap fund

Ans: Hello Naresh. Your portfolio review report sounds good except DSP, Nippon and UTI AMC. Also, there is sectoral alloaction in your portfolio which is ideally suggested to 10-20% of portfolio.

Ans: I advise the following combination:
UTI Nifty 50 Index Fund
ICICI Pru Value Discovery Fund
Nippon India Multicap Fund
Motilal Oswal Midcap Fund

All growth plans. She needs to do assessment of her risk appetite and change the combination if her risk appetite is moderate since all these are equity funds with high risk ratings.

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

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Happy Investing

Ans: Your daughter’s current investment in Bandhan Small Cap Fund, HDFC Large & Midcap Fund, and SBI Magnum Comma Fund shows a focus on a mix of growth-oriented and large to mid-sized equity funds. Small-cap funds generally bring high growth potential, while large and mid-cap funds offer a balance between growth and stability. However, careful diversification and active monitoring are essential, as market volatility can impact these categories differently.

Benefits and Limitations of Current Funds
Small Cap Funds: These funds can offer high growth but are riskier during market downturns. It’s important to assess risk tolerance and market cycles.

Large & Midcap Funds: These funds tend to provide balanced exposure and relatively better stability compared to small caps, but they may not achieve the same high returns during bullish phases.

Sector or Thematic Funds (like the SBI Magnum Comma Fund): Sectoral funds can be beneficial during a boom in their respective sectors but can underperform during sector-specific downturns. Diversification across sectors is important.

Recommendations for Diversification and Growth
To provide a more balanced portfolio and achieve better risk-adjusted returns, diversification across fund types and investment styles is crucial. Consider the following points:

Actively Managed Equity Funds: Actively managed funds with skilled fund managers can outperform in various market conditions. This is especially important for Indian markets, where a proactive approach can yield better results.

Balanced or Hybrid Funds: These funds can balance risk by investing in both equity and debt instruments, offering moderate growth with less volatility.

Systematic Investment Plan (SIP) Increase**: Increasing SIP contributions, as planned, can significantly boost your daughter’s long-term corpus through the power of compounding. Regular top-ups, combined with diversified funds, will help in creating a stable portfolio.

Multi-Cap Funds: Multi-cap funds invest across all market caps and provide better diversification. They can help mitigate the risks associated with market-cap-specific funds.

Additional Key Considerations
Regular Fund Review: Actively review fund performance every six months or annually. This will help realign the portfolio based on performance and market trends.

Avoid Direct Funds: Direct funds may seem cost-effective but lack advisory support. Investing through a Certified Financial Planner (CFP) ensures informed decisions, portfolio rebalancing, and tax optimization. The benefits of regular funds via an MFD with a CFP credential outweigh the perceived cost savings of direct funds.

Points on Tax Efficiency
Tax Planning: Be mindful of long-term and short-term capital gains taxation. While equity mutual funds have a LTCG above Rs 1.25 lakh taxed at 12.5% and STCG at 20%, debt funds are taxed as per the income slab. Consider this when diversifying into debt or hybrid options.

Systematic Withdrawal Plan (SWP): For tax-efficient withdrawals later, consider using SWPs. They allow for periodic withdrawals while minimizing tax implications.

Investment Strategy for Additional Rs 10,000 Per Month
Incremental SIPs: The additional Rs 10,000 can be diversified into multi-cap, flexi-cap, or hybrid funds. This can provide exposure across different market segments and reduce risk concentration.

Sectoral Funds with Caution: If she is interested in thematic funds, it should be a smaller portion (around 10-15%) of her portfolio. Over-reliance on sectors can result in higher volatility.

Emergency Fund and Risk Coverage: Ensure she has a proper emergency fund and adequate insurance coverage. This provides a safety net and ensures long-term goals are not compromised by unforeseen events.

Financial Literacy and Discipline
Stay Informed: Encourage her to regularly learn about market trends and investment principles. Financial literacy will empower her to make independent and informed decisions.

Patience and Discipline: Investing in equity mutual funds requires patience and discipline. Encourage her to remain invested through market cycles and avoid panic selling.

Avoiding Common Pitfalls
Don’t Over-Diversify: While diversification is important, holding too many funds can dilute returns and make tracking cumbersome. Aim for a balanced number of well-researched funds.

Avoid Performance Chasing: Funds that perform well now may not sustain that performance. Focus on funds with consistent track records rather than the latest top performers.

Final Insights
Your daughter's current and planned investments show promising potential if aligned with a disciplined and diversified strategy. Ensure she leverages professional guidance through a Certified Financial Planner and stays informed about market trends and regulations. Long-term discipline and strategic allocation will help maximize wealth creation.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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