I am 44 years and having SIP investment corpus of around Rs. 15 lakhs...I am investing Rs. 82500 in SIP on a monthly basis. The SIPs in which I am investing include Small Caps - Quant, Axis, HDFC and Canara Robeco; Mid Caps - HDFC Opportunities, Kotak Emerging Equity, Mirae Asset; Large Caps - Axis Bluechip, Mirae Asset; Flexi Caps - Kotak & Parag Parikh; Multi Caps - Kotak & Nippon; Multi Asset - Aditya Birla Sun Life; Tax Saver - Quant ELSS; Technology - Tata Digital India & ICICI Prudential.
I want to know if the strategy of investing in so many funds and in different types of schemes correct or do I need to modify my allocation. Apart from these SIPs in Mutual Funds, I am also contributing Rs. 2000 thru monthly SIP in PPF and around 15000 per month in NPS.
Ans: First of all, congratulations on building a substantial investment corpus and maintaining a disciplined SIP strategy. Your diversified approach across different fund categories shows you’re thinking ahead. However, let’s analyze if your current strategy can be optimized.
Diversification and Fund Selection
1. Small Caps:
You are investing in Quant, Axis, HDFC, and Canara Robeco small cap funds. Small cap funds can offer high returns but come with higher risks. Diversifying among four small cap funds may be over-diversification. Consider reducing to one or two well-performing funds to avoid redundancy and excessive risk.
2. Mid Caps:
You have HDFC Opportunities, Kotak Emerging Equity, and Mirae Asset mid cap funds. Mid cap funds strike a balance between growth and risk. Having three different funds is reasonable, but ensure they have different investment styles to avoid overlap.
3. Large Caps:
Axis Bluechip and Mirae Asset large cap funds are good choices. Large cap funds provide stability. Two funds in this category seem fine for diversification and stability.
4. Flexi Caps:
Kotak and Parag Parikh flexi cap funds offer flexibility in investment across different market caps. Having two funds in this category ensures you benefit from the fund manager’s discretion.
5. Multi Caps:
Kotak and Nippon multi cap funds are part of your portfolio. Multi cap funds are flexible but investing in two might be redundant. Assess their performance and consider consolidating if they overlap significantly.
6. Multi Asset:
Aditya Birla Sun Life Multi Asset fund diversifies across asset classes. This adds a layer of risk management and potential stability.
7. Tax Saver:
Quant ELSS is good for tax saving. Ensure it aligns with your risk profile as it invests in equities primarily.
8. Sectoral/Technology:
Tata Digital India and ICICI Prudential Technology funds focus on tech sectors. Sectoral funds can be volatile. It’s wise to limit exposure to such thematic funds.
Assessing Your Asset Allocation
Your asset allocation shows a strong preference for equities, which is excellent for long-term growth but needs balance.
1. PPF and NPS:
You invest Rs 2000 in PPF and Rs 15000 in NPS monthly. PPF provides safety and tax-free returns, while NPS offers a balanced approach with equity exposure.
2. Balance Between Equity and Debt:
You should have a balanced mix of equity and debt. Given your age, a 60-70% equity and 30-40% debt allocation is typically suggested. Your PPF and NPS contributions are good but might need an increase to balance your equity-heavy portfolio.
Suggestions for Portfolio Optimization
1. Reduce Overlap:
Review overlapping funds in the same categories. Consolidate into the best-performing ones to simplify your portfolio.
2. Increase Debt Allocation:
Increase contributions to debt instruments like PPF or consider adding debt mutual funds. This will provide stability and reduce volatility.
3. Consider Hybrid Funds:
Hybrid funds balance equity and debt. Adding them can offer stable returns and lower risk.
Investment Strategy Going Forward
1. Review Performance Regularly:
Monitor your fund performance every 6-12 months. Ensure they are meeting your expectations and benchmark them against peers.
2. Stay Disciplined:
Continue your SIPs regularly. Market fluctuations are normal, but consistent investing benefits in the long term.
3. Avoid Sectoral Bias:
Limit exposure to sectoral funds to reduce risk. Diversification within sectors can be risky if that sector underperforms.
4. Plan for Liquidity Needs:
Ensure you have a liquid emergency fund. Ideally, this should cover 6-12 months of expenses.
Final Insights
Your current SIP strategy is strong but can be optimized by reducing overlaps and balancing equity with debt investments. Stay disciplined, review regularly, and adjust based on performance and changing financial goals. Consulting a Certified Financial Planner can offer personalized advice.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
