Sir i am investing in follwing manner in mutual funds please suggest me in this regard
1 ICICI blue chip direct growth for Rs 1000
2 ICICI nifty fifty index fund for RS 1000
3 Nippon india multy cap for Rs 1000
4 Nippon india small cap for Rs 1000
5 Quant small cap for RS 1000
6 motilal oswal mid cap for Rs 1000
7 hdfc oppurtunities mid cap for Rs1000
8 quant mid cap for Rs 1000
9 parag parik flexi cap for Rs2000
10 hdfc flexi cap for Rs 2000
11 JM flexi cap for rs 2000
12 Quant flexi cap for Rs 2000
My invsestment horizon s
Is 10 to 12 years ,
Please suggest any rebalancing is required
Ans: You've built a diversified mutual fund portfolio across multiple categories and fund houses, which is commendable. Let’s review this structure to ensure it aligns with your goals and maximises growth potential for your 10-12 year horizon.
In the following suggestions, I’ll focus on streamlining your portfolio for balanced growth, minimising overlap, and optimising returns.
Review of Current Portfolio Structure
Your portfolio spans several categories, including large-cap, index, mid-cap, small-cap, and flexi-cap funds. While this diversification reduces risk, it may also lead to redundancy and portfolio overlap. Let’s evaluate each category:
Large-Cap: Provides stability and moderate growth.
Mid-Cap and Small-Cap: Offers higher growth potential but comes with more volatility.
Flexi-Cap: Adds flexibility, allowing fund managers to adjust holdings based on market conditions.
Index Fund: Index funds often carry lower costs but may underperform actively managed funds over time.
Analysis of Each Fund Category and Suggested Adjustments
1. Large-Cap Funds
Current Investment: Rs 1,000 in ICICI Bluechip Fund (Direct Growth).
Assessment: A large-cap fund adds stability to the portfolio, which is beneficial.
Suggested Action: Continue with this allocation, as large-cap funds provide balanced growth and less volatility.
2. Index Fund
Current Investment: Rs 1,000 in ICICI Nifty Fifty Index Fund.
Assessment: Index funds may offer stable returns but lack active fund management benefits. Actively managed funds typically outperform index funds in the long run, especially for a 10-12 year horizon.
Suggested Action: Consider switching this allocation to an actively managed large-cap or flexi-cap fund. Actively managed funds provide potential for enhanced returns with the support of skilled fund managers.
3. Mid-Cap Funds
Current Investment: Rs 3,000 (split across Motilal Oswal Mid Cap, HDFC Opportunities Mid Cap, and Quant Mid Cap).
Assessment: While mid-cap funds offer growth, holding three funds within the same category may create overlap. Mid-cap funds can be volatile but generally perform well in the long term.
Suggested Action: Consider consolidating to two funds within this category. Reducing overlap allows for easier tracking and reduces redundant exposure. Continue with HDFC Opportunities and one other mid-cap fund of your choice.
4. Small-Cap Funds
Current Investment: Rs 2,000 (Rs 1,000 each in Nippon India Small Cap and Quant Small Cap).
Assessment: Small-cap funds have high growth potential but also high risk. Limiting to one small-cap fund can manage risk more effectively, especially as the portfolio already has mid-cap exposure.
Suggested Action: Consolidate to one small-cap fund. Select the fund that has consistently performed well and aligns with your risk tolerance.
5. Flexi-Cap Funds
Current Investment: Rs 8,000 (allocated across Parag Parikh Flexi Cap, HDFC Flexi Cap, JM Flexi Cap, and Quant Flexi Cap).
Assessment: Flexi-cap funds are a good choice for your investment horizon, as they allow fund managers to adjust between large-, mid-, and small-cap stocks. However, having four funds in this category may lead to redundancy.
Suggested Action: Narrow down to two or three flexi-cap funds. This streamlines your portfolio and reduces tracking complexity.
Recommended Portfolio Structure for a Balanced, Growth-Oriented Approach
After the above adjustments, here’s a suggested rebalancing strategy:
Large-Cap Funds: Maintain your allocation in ICICI Bluechip. Large-cap stability is crucial for a well-rounded portfolio.
Flexi-Cap Funds: Retain Parag Parikh Flexi Cap and one or two others of your choice. Flexi-caps should form a significant portion, as they offer the flexibility to adjust across market caps.
Mid-Cap Funds: Retain two mid-cap funds for growth potential. HDFC Opportunities Mid Cap and one other mid-cap fund should be sufficient.
Small-Cap Funds: Retain one small-cap fund for high growth potential. Select the one that best suits your risk tolerance.
Benefits of This Streamlined Approach
A simplified portfolio offers multiple benefits for long-term wealth creation:
Reduced Overlap: Minimising fund overlap reduces redundant exposure within the same asset class. This makes your portfolio more efficient.
Enhanced Returns: Actively managed funds in flexi-cap and large-cap categories are likely to yield better returns over time than index funds.
Easier Management: Fewer funds mean easier tracking and management. A simplified portfolio enables regular reviews without added complexity.
Taxation Awareness for Mutual Funds
Understanding taxation helps in planning withdrawals and tax savings effectively.
Equity Mutual Funds: Long-term capital gains (LTCG) over Rs 1.25 lakh are taxed at 12.5%. Short-term capital gains (STCG) are taxed at 20%.
Debt Mutual Funds: Both LTCG and STCG are taxed as per your income tax slab, which can impact post-tax returns.
Tax-Efficient Withdrawals: Plan withdrawals strategically to minimise taxes and maximise returns. A Certified Financial Planner can guide on the tax-efficient withdrawal approach.
Final Insights
Your diversified portfolio shows a good approach towards growth. With a few adjustments, it can become more streamlined and focused on high returns. Aim for a balance of stability and growth with carefully chosen large-cap, mid-cap, and small-cap funds.
A well-maintained portfolio with annual reviews, consolidation, and tax-aware strategies will bring you closer to achieving your financial goals.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment
