I have three SIP's of Rs. 2000 each in HDFC Midcap Fund, HDFC Small Cap Fund and HDFC balanced advantage fund for over 5 years. Their current CAGR is approximately 20-22 %. Should I stay invested or switch to different funds. Please suggest.
Ans: You have done an excellent job staying consistent with your SIPs. Investing regularly for five years in diversified categories shows strong financial discipline. Your selected funds also represent a good blend of growth, stability, and flexibility. Let us analyse your situation in depth and assess whether you should continue or switch.
» Understanding your present investment position
You have three SIPs of Rs. 2000 each in midcap, small cap, and balanced advantage funds.
Total monthly investment is Rs. 6000, running for over five years.
Current compounded growth rate (CAGR) is around 20–22%, which is very impressive.
Such high CAGR reflects not just market movement but also your patience and discipline.
Most investors lose returns by exiting early or changing funds unnecessarily. You have avoided that mistake.
This disciplined behaviour deserves appreciation because compounding works best when the investment continues for long periods.
» Evaluating the nature of your funds
Your midcap fund focuses on medium-sized companies with strong growth potential.
Your small cap fund invests in relatively smaller firms that grow faster but with higher risk.
Your balanced advantage fund dynamically manages equity and debt, reducing volatility.
This mix provides a healthy balance between aggression and stability.
The midcap and small cap funds together create long-term wealth through growth.
The balanced advantage fund cushions the portfolio during market corrections.
Thus, your current selection already covers risk diversification.
There is no immediate need to switch purely because of high past returns.
» Understanding performance sustainability
A 20–22% CAGR is above the long-term average of most equity funds.
Such performance is usually achieved during favourable market cycles.
In future, expect moderate but steady returns rather than sharp gains.
Mutual funds go through phases of outperformance and underperformance.
Therefore, judging them only on recent returns may mislead your decision.
A fund should be evaluated over complete market cycles, not just during bullish years.
You already hold your SIPs for five years, which means you have crossed at least one full market cycle.
This gives confidence that the funds have strong portfolio management and process.
» Evaluating your time horizon and goal alignment
The decision to continue or switch depends on your investment goal.
If these SIPs are for long-term wealth creation or retirement, continuation is best.
Equity funds need at least 7–10 years to show their real potential.
Since you have already seen 5 years, you are entering the most rewarding phase of compounding.
Selling now may interrupt this compounding journey and reduce future gains.
Instead, continuing the same SIPs for another 5–10 years will multiply the corpus significantly.
However, if your goal is nearing within 3 years, you may gradually shift profits to safer options.
This step helps preserve your accumulated gains against sudden market correction.
» Analysing risk and volatility tolerance
Midcap and small cap funds are naturally volatile.
In extreme market falls, they can drop 20–30% temporarily.
However, these falls are short-lived when the underlying companies remain strong.
Your balanced advantage fund helps manage such risk efficiently.
Thus, your current mix already balances growth and safety.
Instead of switching, you may just adjust allocation based on changing goals.
For example, if you feel market risk is high, you can divert future SIPs to the balanced fund.
This approach retains flexibility while maintaining long-term compounding.
» Importance of reviewing fund consistency rather than chasing new names
Many investors switch funds often expecting faster returns.
This approach harms compounding and increases taxation impact.
What matters more is fund consistency over various market cycles.
Check if your funds regularly rank in the top half of their category.
Review if the fund house maintains stable fund managers and investment philosophy.
Your current funds belong to a strong fund house known for disciplined management.
Unless there is major change in fund strategy or long-term underperformance, switching is unnecessary.
The real power lies in staying with consistent performers rather than chasing recent stars.
» Taxation impact of switching
When you switch or redeem, long-term capital gains above Rs. 1.25 lakh are taxed at 12.5%.
Short-term gains below one year are taxed at 20%.
Every redemption triggers tax liability which reduces net returns.
Staying invested longer delays taxes and allows compounding to work uninterrupted.
Frequent switching may also create unnecessary record-keeping issues for future tax filing.
Hence, unless performance drops sharply, avoid switching purely for temporary advantages.
» Why avoiding index funds makes sense here
Some investors may suggest switching to index funds because of lower cost.
However, index funds cannot beat the market because they only mirror it.
Active funds, on the other hand, have expert fund managers who can outperform indexes.
When markets fall, index funds drop equally, but active funds may control the downside better.
Also, index funds often have high tracking error, meaning they may not fully match index performance.
Your actively managed funds have already given superior returns, proving their effectiveness.
Hence, staying with actively managed funds through a Certified Financial Planner adds long-term value.
» Why avoiding direct funds helps you more
Many investors get attracted to direct funds to save small commissions.
But direct funds remove the personal guidance of a Certified Financial Planner.
Without professional review, investors often make emotional decisions during market ups and downs.
A Certified Financial Planner through regular plans provides behavioural guidance and timely rebalancing.
This prevents panic selling during market falls and ensures goal-based discipline.
The cost difference between direct and regular funds becomes small compared to the value of expert hand-holding.
So, continuing through the regular route is more beneficial for wealth creation.
» Importance of periodic portfolio review
Continuing does not mean ignoring your investments.
Every 12 months, review your portfolio’s growth, risk, and goal alignment.
If any fund consistently underperforms its category for more than 2 years, then only think of replacement.
Check if the fund manager or investment approach has changed drastically.
Assess if your life goals or responsibilities have changed since the last review.
Such periodic reviews keep your investments healthy without unnecessary switching.
» Managing asset allocation going forward
Your SIPs are small compared to your total wealth, but they hold growth potential.
With rising income, you may gradually increase your SIPs by 10% each year.
Keep your total allocation roughly 60–65% in equity and 35–40% in fixed-income instruments.
This mix can give stability and growth for your long-term goals.
If your son starts earning soon, you may redirect saved expenses to increase SIPs.
This will boost your family’s financial strength without changing your current funds.
» Ensuring liquidity and contingency readiness
While continuing SIPs, maintain an emergency fund equal to 6 months of expenses.
You can keep this in short-term debt funds or savings deposits.
This ensures that you will not need to break your long-term SIPs during any emergency.
Also, keep a separate reserve for parents’ medical needs, preferably in a liquid account.
Such liquidity planning keeps your investment journey smooth and stress-free.
» Behavioural discipline is your biggest strength
Market volatility can test investor patience.
However, your consistent 5-year record proves that you can handle ups and downs.
This patience and discipline are more important than selecting the best fund.
Continue maintaining SIPs even if markets look uncertain.
The true wealth creation happens by staying invested through all cycles.
» What can be improved from here
You can add one more diversified flexi-cap fund to widen your exposure.
Avoid duplication in fund categories to prevent over-diversification.
If your goal horizon is above 10 years, increasing SIP contribution by Rs. 1000–2000 yearly can boost wealth.
Ensure your total portfolio aligns with your retirement and family protection goals.
Update nomination details in all investments and maintain proper documentation.
» Risk control through rebalancing
Once every 2–3 years, rebalance your portfolio if equity portion grows beyond comfort level.
Rebalancing means moving some profit to safer instruments.
This maintains risk balance and locks profits systematically.
Your Certified Financial Planner can help decide when and how much to rebalance.
This simple act increases long-term stability without disturbing compounding.
» Psychological comfort over numerical return
Staying invested brings peace when you know your money follows a clear plan.
Switching funds often brings mental pressure and regret during market changes.
You have already built a strong foundation with good funds.
The next step is to strengthen the plan, not restart it.
Hence, avoid unnecessary fund hopping and focus on time in the market.
» Finally
Your current mutual funds are performing strongly with well-balanced risk.
There is no valid reason to switch at this stage.
Continue with your SIPs, increase contribution gradually, and review once a year.
Add one flexi-cap fund if you want broader diversification.
Maintain your emergency fund and rebalance every few years.
Trust your patience, discipline, and professional review to guide your success.
Staying invested in good funds through long-term discipline will always beat frequent changes.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment
Question by Umesh on Dec 07, 2022Hindi
