Hi Sir, I have started Lumpsom of 10K each in almost all 17 Portfolios Companies in Large, Mid, Small, Flexi Funds.. and planned not to withdraw for min 3-5 years, Kindly suggest is this good or bad
Ans: Your decision to invest across multiple funds shows commitment to wealth creation. However, the number of funds and strategy needs some fine-tuning. A 17-fund portfolio may lead to overlap and make it harder to manage. Let’s assess the pros and suggest adjustments for optimal growth.
Key Observations
Too Many Funds Reduce Focus:
Investing in 17 funds dilutes portfolio efficiency. It also creates duplication, as many funds may hold similar stocks, especially in large-cap or flexi-cap categories.
Increased Management Difficulty:
Monitoring multiple funds is time-consuming. It becomes harder to assess performance regularly. A compact portfolio ensures better tracking and rebalancing.
Overlapping Risks:
Some funds from different categories may invest in the same companies. This reduces diversification benefits and makes the portfolio less efficient.
Short Investment Horizon:
A 3-5 year horizon is quite short, especially for equity-heavy portfolios. For maximum returns, equities perform better over 7-10 years. Consider this when planning your exit strategy.
Suggested Adjustments
Optimise Fund Selection:
Instead of investing in many funds, reduce to 7-8 high-performing ones. This makes it easier to monitor, and your returns won't get diluted.
Choose Multi-Cap and Hybrid Funds:
Multi-cap and hybrid funds offer flexibility by allocating across market caps. They also shift between equity and debt, providing better stability during volatile markets.
Avoid Category Overlap:
Too many funds in the same category (like multiple large-caps) add redundancy. Choose one or two high-quality funds from each category—large-cap, mid-cap, and small-cap.
Long-Term Benefits of Compact Portfolio
Better Performance Tracking:
With fewer funds, it's easier to track performance and make timely adjustments. You will also benefit from concentrated growth.
Higher Returns Potential:
When you hold fewer, well-chosen funds, each has a meaningful impact on the overall portfolio. Returns are less likely to get diluted by overlapping holdings.
Easy Rebalancing:
A smaller portfolio allows smoother rebalancing between equity and debt, ensuring long-term stability.
Recommended Action Plan
Review Current Holdings:
Identify the overlapping funds and remove similar ones to avoid redundancy.
Select 1-2 Funds per Category:
Keep a mix of large-cap, mid-cap, small-cap, and multi-cap funds for balanced growth.
Add Hybrid Fund for Stability:
Include one hybrid or dynamic fund to safeguard the portfolio during volatile periods.
Extend Investment Horizon:
Increase your horizon to 7-10 years for better returns from equity investments. If liquidity is a concern, plan partial withdrawals systematically.
Invest via Regular Plans:
Investing through Certified Financial Planners (CFP) and mutual fund distributors (MFDs) ensures guidance and better fund selection over time.
Taxation Awareness
Capital Gains Tax:
For equity mutual funds, long-term capital gains (LTCG) above Rs. 1.25 lakh attract 12.5% tax. Short-term capital gains (STCG) are taxed at 20%.
Debt Fund Taxation:
Both LTCG and STCG are taxed according to your income slab.
Plan your withdrawals carefully to minimise tax liabilities and maintain returns.
Final Insights
Your commitment to investing is a great step towards wealth creation. However, reducing the number of funds will streamline your portfolio and improve performance. A smaller, focused portfolio ensures better returns with less management hassle. Also, extending your investment horizon will unlock the full potential of equity growth.
Invest through regular funds with professional guidance, ensuring you receive ongoing support from your CFP or MFD. Finally, stay invested for the long term to achieve your financial goals confidently.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment
