Should I Change my 30-Year Investment Portfolio?

Ans: Your portfolio reflects a thoughtful approach to diversification. As a beginner, focusing on equity funds is excellent for long-term wealth creation. Let us assess and refine your portfolio for better alignment with your goals.

Review of Your Current Portfolio
Strengths
Clear Asset Allocation: Allocating 30% to large-cap, 35% to mid-cap, and 35% to small-cap is commendable.
Equity-Focused Approach: A diversified equity portfolio suits a 30-year horizon.
Regular SIPs: Systematic investing ensures discipline and reduces market timing risks.
Areas of Improvement
Overlapping Exposure: Multiple funds in the same category could lead to redundancy.
Excessive Small-Cap Allocation: Small-caps have higher risk, which might not be sustainable.
Index Fund Inclusion: Actively managed funds often outperform index funds in Indian markets.
Detailed Fund Category Analysis
Large-Cap Allocation (30%)
Your current allocation here is less diversified. Large-cap funds offer stability and steady growth.
Active large-cap funds outperform indices during volatile phases. Consider shifting from index to an active fund.
Mid-Cap Allocation (35%)
You have allocated a significant portion to mid-caps, which is suitable for higher growth potential.
However, holding multiple mid-cap funds might create overlapping portfolios. Consider consolidating.
Small-Cap Allocation (35%)
Small-cap funds add growth potential but carry higher risks.
A 35% allocation to small-caps is aggressive. Reducing this to 25% is advisable for better balance.
Suggestions for Portfolio Restructuring
Reduce Fund Overlap
Multiple funds in the same category create unnecessary duplication.
Consolidate mid-cap and small-cap funds to avoid excessive diversification.
Adjust Asset Allocation
Large-Cap Funds: Increase allocation to 40% for stability and predictable returns.
Mid-Cap Funds: Retain 30% allocation for balanced growth.
Small-Cap Funds: Reduce to 25% to lower volatility.
Consider Actively Managed Funds
Index funds like the Nifty 200 Alpha Index Fund lack the flexibility of active management.
Actively managed funds can outperform due to dynamic allocation strategies.
Opt for Regular Plans with a Certified Financial Planner
Direct funds may appear cost-effective but lack guided expertise.
Investing through a Mutual Fund Distributor (MFD) with a Certified Financial Planner ensures better fund selection.
Tax Efficiency and Withdrawal Planning
Tax Implications of Equity Funds
Long-term capital gains above Rs 1.25 lakh are taxed at 12.5%.
Short-term capital gains are taxed at 20%.
Plan redemptions to minimise tax liability over the years.
Align SIPs with Long-Term Goals
Review portfolio performance every 3-5 years.
Redirect SIPs to outperforming funds or categories as required.
Best Practices for a 30-Year Investment Journey
Stay Disciplined
Continue SIPs regardless of market fluctuations.
Avoid panic selling during market corrections.
Periodic Portfolio Review
Evaluate fund performance every 1-2 years.
Ensure funds meet your expectations and long-term goals.
Build an Emergency Fund
Set aside 6-12 months’ expenses in a liquid fund.
This will safeguard your equity investments during financial emergencies.
Final Insights
Your portfolio demonstrates a great start for wealth creation. With minor adjustments, it can perform better over the next three decades. Focus on reducing redundancy, increasing large-cap exposure, and leveraging active management. Stay committed, review periodically, and seek guidance from a Certified Financial Planner.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in

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