I want to start Mutual Fund SIP (Systematic Investment Plan) with a monthly investment of approx Rs. 40,000. I will turn 30 next month. I have chosen the following funds for investment – Parag Parikh Flexi Cap Fund, Axis Bluechip Fund, ICICI Prudential Nifty Index, UTI Nifty 50 Index Fund (each Rs.7,500 per month) and PGIM India Midcap Opportunities Fund & ICICI Prudential Technology (Both) Rs.5,000 per month). I want to invest more in equities and split it into large and midcap. I want to stay invested for the next 20 plus years. Also, I am comfortable with aggressive risk taking ability for the next 2-3 years. Are the funds chosen right?
– Name withheld on request
As per the current allocation of the fund in your portfolio, you are planning to invest 57% in large-cap funds, 18% in flexi funds and the remaining 25% divided between sector funds and mid-cap funds. Some observations can be made about these allocations and the funds selected. Considering your longer time horizon as well as your (current) aggressive risk appetite, the 57% allocation in large-cap funds is high. Also, having 3 funds for this segment is an overkill as there will be a lot of overlap between these funds (the two funds will have practically identical portfolios). My recommendation in this regard would be to consolidate into one large-cap index fund, Axis Nifty 100 Fund – a fund that will invest across the large-cap market space and track the Nifty 100 index. You can also reduce the allocation by a third, and invest Rs. 15,000 in this fund.
The second overview will be with respect to the sector fund you have chosen. Keeping sector funds in very long duration portfolio is not a good idea as such funds require timing calls in terms of entry and exit. Instead, you can add another flexi-cap fund like Canara Robeco Flexi Cap Fund. You can take this Rs. 5,000, and Rs. 7,500 from the large-cap space and make it 10,000 in each of the two flexi cap funds in the portfolio. Alternatively, you can invest 15,000 in Parag Parikh Fund and add small-cap funds like SBI Small Cap Fund to your portfolio 7,500. The latter option will be more risky than the former, so you can decide which risk direction you want to proceed. Once these changes happen, you will have one large-cap fund, two flexi-cap funds and either one. Or two funds in mid- and small-cap. Overall, this would represent a fair diversification in the equity market and is expected to yield better returns than the market over the long term.
Shrikant Meenakshi is the co-founder of Prime Investor. Send your queries to mintmoney@livemint.com and get answers to them from industry experts.
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