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Should I reduce duplicate funds in my Rs 50,000 MF portfolio?

Ramalingam Kalirajan |6558 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Sep 04, 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

Question by Mrinal on Sep 03, 2024Hindi

Please suggest me if I have to reduce my fund count if those are duplicates or I have to assign different amounts to have a well diversified MF portfolio. I am investing a total of 50k per month. Sl Fund Amount Type 1 ICICI pru value discovery fund 6000 Large Cap 2 Kotak emerging equity fund 6000 Mid Cap 3 Kotak equity opp fund 6000 All 4 Parag parikh flexi cap fund 6000 All 5 SBI ESG Exclusionary strategy fund reg G 4000 6 SBI Equity Hybrid fund 4000 Large Cap 7 SBI Technology opportunity fund 2000 8 ICICI Prudential NASDAQ 100 index fund 5000 9 Quant flexi cap fund 5000 All 10 Quant small cap fund 2500 Small Cap 11 Quant mid cap fund 2500 Mid Cap 12 Axis focused fund 1000 Large Cap

Ans: Your current portfolio of Rs. 50,000 per month has a variety of funds across different categories. Diversification is good, but it's crucial to avoid overlapping and redundant funds. Let's break down your portfolio for better clarity.

Assessing Fund Overlap
Having too many funds in the same category can dilute the benefits of diversification. Here’s a closer look:

Large Cap Funds: You are currently investing in three large-cap funds. It's better to streamline this category. Choose one or two strong performers instead of spreading your investments too thin.

Mid Cap Funds: You have two mid-cap funds. This is reasonable, but ensure they have distinct strategies. If both are similar, consider reducing one.

Small Cap Funds: A small allocation to small-cap funds is good. You have one, which fits well with your overall strategy.

Flexi Cap Funds: You have three funds in this category. Flexi-cap funds are versatile, but having three might be excessive. It’s better to focus on one or two.

Sectoral/Thematic Funds: You have investments in a technology fund and an ESG fund. These are niche investments and should not dominate your portfolio. Keep these as smaller allocations.

Hybrid Funds: A single hybrid fund is a good way to add stability. This is well placed in your portfolio.

Index Funds: Index funds are mentioned here, but actively managed funds tend to offer better potential returns, especially in an Indian context. Consider this when reviewing your index fund allocation.

Suggestions for Portfolio Optimization
Streamlining the Portfolio
Large Cap Funds: Reduce the count to one or two. Stick with the one that has a proven track record over multiple market cycles.

Mid Cap Funds: Keep one strong performer. If the funds are similar, reduce the other.

Flexi Cap Funds: Opt for one or two that have a distinct investment strategy and stick to them. Avoid duplicating your flexi-cap investments.

Reallocation of Investment Amounts
Increase in Core Funds: Focus more on your core funds, like one large-cap and one flexi-cap. These should take up a larger portion of your Rs. 50,000 monthly investment.

Maintain Small Allocations: Keep smaller investments in niche funds like your sectoral/thematic funds. These should not exceed 10-15% of your total investment.

Consider Debt Funds: Though not mentioned, adding a debt fund or increasing allocation to your hybrid fund could provide stability.

Importance of Active Management
If you are investing in direct funds, you might miss out on the strategic guidance offered by Certified Financial Planners (CFPs). Regular funds through a CFP can provide active management, which could lead to better returns. This is especially important in a dynamic market.

Final Insights
Your current portfolio is diverse but may be overly complex. Simplifying by reducing the number of funds in each category can lead to better performance and easier management. Reallocate your investments to focus more on high-quality core funds while keeping niche funds as a small part of your portfolio.

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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Question by swami - Oct 10, 2022Hindi

My age is 27 and i am planning for my retirement so i am investing 20K every month in sip and will step up 10% every year . I am expecting 15% return on my investments. I started investing in MF from march 2022 and I have also investing 10K in EPF and 1.5 L in LIC. I have added all my mutual funds below , please reveiw and share ur opinion. If it’s over diversified suggest me which fund i need to remove from my portfolio. Small cap funds – 4( 6500 ) 1. Axis Small Cap Fund Direct Growth-2000 2. Kotak Small Cap Fund - Direct Plan - Growth (Erstwhile Kotak Mid-Cap) -1500 3. NIPPON INDIA SMALL CAP FUND - DIRECT -1500 4.Quant Small Cap Fund - Direct Plan Growth -1500 Mid cap Funds – 4 (4500) 1. PGIM India Midcap Opportunities Fund - Direct Plan – Growth- 1000 2. Quant Mid Cap Fund – Growth -1500 3. Invesco India Midcap Fund - Direct Plan Growth -1000 4. Axis Mid Cap Fund - Direct Growth -1000 Blue chip & Growth -2 (2500) 1. Mirae Asset Emerging Bluechip Fund - Direct Plan-1500 2. Axis Growth Opportunities Fund Direct Growth -1000 Sectorial Diversification -6 (4500) 1. ICICI Prudential Technology Fund - Direct Plan – Growth - 1000 2. ICICI Prudential Pharma Healthcare and Diagnostics (P.H.D) Fund Direct Plan Growth -500 3. ICICI Prudential Banking and Financial Services Fund - Direct Plan – Growth -500 4. Mirae Asset Great Consumer Fund - Direct Plan -1500 5. Quant infrastructure fund - 1000 US market (2500) 1. Navi US Total Stock Market Fund of Fund Direct Plan Growth – 2500

Ans: Hello swami. The detailed overview of your MF portfolio indicates over-diversification with 20k SIP. Hence, I would suggest reconsidering, pruning, and reshuffling your portfolio.

As part of the portfolio reshuffle, make sure to have AMC diversification as well.

Limit yourself to 1-2 schemes in each category.

I can see several schemes in different categories for each AMC. I recommend reconsidering the scheme for Navi US scheme to better scheme in same category.

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