BackAsk Mint Money | Historically, large-cap stocks are less volatile and more stable
Ask Mint Money | Historically, large-cap stocks are less volatile and more stable
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I am 27 years old and plan to invest ₹ 2 lakh in tax-saving equity-linked mutual funds (ELSS). I want my portfolio to have maximum large-cap funds, followed by mid-caps. I don’t want any debt in my portfolio. Which funds should I pick?
Suman
One can invest as much as they wish in an ELSS, but the tax exemption benefit will be limited to ₹ 1 lakh. Plus, this limit also includes other tax-exempt investments such as provident fund and home loan principal repayments. So if tax exemption is a goal, you would need to work within this limit and identify how much to invest in ELSS. Once you figure out the amount, you can invest in funds such as HDFC Tax Saver and Religare Tax Plan. Though these funds are broad-market funds—they invest across all segments of the equity market—they are generally oriented towards the large-cap segment.
For the amount that remains after this investment is made, you can consider a portfolio as you suggest—focusing on large-cap funds with some exposure to mid-caps. You can invest in a ratio of 70:30. Funds like ICICI Prudential focused Bluechip and Franklin India Bluechip are good choices in the large-cap segment, while DSP Black Rock Small and Mid-cap fund and HFDC Mid-cap Opportunities are good mid-cap funds.
I have been investing ₹ 5,000 per month each in DSP BlackRock Top 100, Franklin India Bluechip, ICICI Prudential Focused Bluechip Equity and Franklin India Index NSE Nifty. I want to invest another ₹ 6,000. Where should I invest? Are these funds good for long-term goals?
Gauri
All the funds you are currently investing in are pure large-cap funds—they invest only in very big companies. Historically, such stocks tend to be less volatile and more stable but they also tend to grow slower than small- or medium-sized companies. Hence, you would do well to complement your portfolio with funds that invest in the rest of the stock market. Funds such as IDFC Premier Equity fund and HDFC Mid-cap Opportunities are good choices.
Once you invest your extra money in this sector, you will have a total monthly outflow of ₹ 26,000, out of which ₹ 20,000 or 77% will go into large-cap funds. This is still quite a large allocation. Also, since the current funds you are holding are all of the same category, it is likely that there will be a bit of overlap between them in terms of the stocks they are holding. So you should move one of your current investments (one of the two Franklin funds can be considered) to another small/mid-cap or a multi-cap fund such as Quantum Long-term Equity Fund. Then, you will have about 60% of your portfolio in large-caps and the rest would be distributed among the growth segments of the market.
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