Dear sir, currently I am investing 5000 in SBI Blue chip, 3500 in ABSL frontline equity, 2000 in mira asset ELSS, 5000 in PPFAS flexi cap , 2500 in Quant active fund 5000 in Motilal Oswal mid cap , 1000 in HSBC midcap , 2500 in HSBC small cap, 3000 in Nippon small cap and 2000 in quant small cap. Apart from this I am doing 1 lakh per year in PPF and 10000 per month in NPS. I have started my investment since 2017 and gathered around 16 lakhs , my target is 1 cr in 2031 , Questions , is my investments are inline to achieve my aim , further I want to start sip exclusively for my kid , he is 8 yrs old I can contribute 5 k , pls suggest a aggressive Equity fund for around 20 yrs horizon. Shall I continue to invest in PPF / NPS OR divert money to MFs pls suggest, waiting for your reply. Thanks and regards.
Ans: Your current investment portfolio includes:
SBI Blue Chip Fund: Rs. 5,000
Aditya Birla Sun Life Frontline Equity Fund: Rs. 3,500
Mirae Asset ELSS: Rs. 2,000
PPFAS Flexi Cap Fund: Rs. 5,000
Quant Active Fund: Rs. 2,500
Motilal Oswal Midcap Fund: Rs. 5,000
HSBC Midcap Fund: Rs. 1,000
HSBC Small Cap Fund: Rs. 2,500
Nippon Small Cap Fund: Rs. 3,000
Quant Small Cap Fund: Rs. 2,000
Public Provident Fund (PPF): Rs. 1 lakh per year
National Pension System (NPS): Rs. 10,000 per month
You've accumulated around Rs. 16 lakhs since 2017. Your goal is to achieve Rs. 1 crore by 2031. Additionally, you're looking to start an aggressive equity SIP for your 8-year-old child, with a 20-year horizon.
Assessing Your Current Portfolio
Diversification and Fund Allocation:
Your portfolio is diversified across large-cap, mid-cap, small-cap, and flexi-cap funds. This diversification is positive as it balances risk and return potential.
Your exposure to mid-cap and small-cap funds indicates a moderate to high-risk appetite. This is aligned with your long-term goal but requires consistent monitoring due to the inherent volatility in these segments.
The allocation to ELSS (Mirae Asset) provides tax benefits but also contributes to your equity exposure.
PPF and NPS Contributions:
PPF: While PPF is a safe investment with tax benefits, its returns (typically around 7-8%) may not be sufficient to meet your aggressive goal of Rs. 1 crore by 2031. The lock-in period is also a limitation if you require liquidity.
NPS: NPS offers a mix of equity and debt, with some tax benefits. However, its returns are generally lower than pure equity funds, and it comes with restrictions on withdrawal until retirement.
Progress Towards Your Rs. 1 Crore Goal
Current Portfolio Value:
You've accumulated Rs. 16 lakhs since 2017, which is a commendable start. However, to reach Rs. 1 crore by 2031, you'll need to assess whether your current SIPs are adequate.
Expected Growth:
Assuming an average return of 12-14% per annum from your equity mutual funds, your current investments should grow significantly by 2031. However, to reach Rs. 1 crore, you'll need to ensure that your investments are aggressive enough and consistently reviewed.
SIP Analysis:
Your current SIPs total Rs. 30,500 per month. If this continues, and assuming a 12% annual return, you could potentially reach around Rs. 80-90 lakhs by 2031. To bridge the gap to Rs. 1 crore, you may need to increase your SIPs slightly or optimize your portfolio.
Recommendations for Optimizing Your Portfolio
Continue Investing in Equity Mutual Funds:
Considering your goal and risk appetite, it's advisable to continue focusing on equity mutual funds. They have the potential to deliver higher returns over the long term compared to PPF and NPS.
Reallocation from PPF/NPS to Mutual Funds:
You may consider reducing your contributions to PPF and NPS and reallocating those funds into your equity mutual funds. This strategy could enhance your portfolio's growth potential.
For instance, you could reduce your PPF contribution to the minimum required to maintain the account and redirect the surplus to a well-performing equity fund.
Additional SIP for Your Child:
For your child’s education or future needs, with a 20-year horizon, you can opt for an aggressive equity fund. An equity fund with a focus on growth sectors like technology, healthcare, or emerging markets can be suitable.
Since you’re comfortable with risk, you might consider a mid-cap or small-cap fund with a strong track record. Over 20 years, these funds can deliver substantial returns, though they come with higher volatility.
Fund Performance Monitoring:
Regularly review the performance of your mutual funds. If a fund consistently underperforms its benchmark or peers, consider switching to a better-performing option.
While diversification is important, avoid over-diversification, which can dilute returns. A well-chosen set of 5-7 funds can be more effective than spreading your investments too thinly.
Suggested Changes and Future Actions
Consolidate Your Portfolio:
Consider consolidating your investments into fewer, high-performing funds. For instance, you might reduce the number of small-cap funds to focus on those with the best track records.
Simplifying your portfolio makes it easier to manage and track performance.
Increase SIPs Gradually:
To bridge the gap to Rs. 1 crore, consider increasing your SIPs by a small amount each year. Even a Rs. 2,000-3,000 increase annually can make a significant difference over time.
Maintain Emergency Funds:
Ensure you have an adequate emergency fund separate from your investments. This will prevent you from liquidating investments during market downturns or emergencies.
Final Insights
Your current investment strategy is on the right track, but slight adjustments and a focus on equity funds can help you achieve your Rs. 1 crore target by 2031. For your child’s future, an aggressive equity fund with a 20-year horizon is a wise choice. Reducing your exposure to lower-yielding options like PPF and reallocating to mutual funds can further enhance your portfolio's growth potential.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
