15 years is a good long-term time frame for equity funds
Stay invested while reviewing your portfolio only on set intervals (like once a year) and not because of any market movement
I am 27 years old, and I have been investing around ₹25,000 in SIPs for the last three years. I am now planning to invest up to ₹50,000 aggressively for about 5-10 years. I have monthly investments of ₹10,000 in Franklin Smaller Cos, ₹5,000 in Franklin Focused Equity fund (formerly High Growth Cos fund), ₹7,500 in SBI Small Cap, ₹7,500 in L&T Emerging Bluechip, ₹5,000 in Mirae Asset Emerging Bluechip, ₹5,000 in Mirae Asset India Equity, ₹5,000 in DSP BR Tax Saver and ₹5,000 in Axis Long Term Equity (ELSS). Please tell me how I should modify my portfolio in terms of fund selection and allocation.
You are certainly investing in a highly aggressive portfolio. Not only is it all equity, your portfolio is also concentrated on the highly risky mid- and small-cap segments of the market. You are currently investing 60% (₹30,000) of your monthly amount in this segment, and the remaining 40% is going to broadly diversified funds (including the ELSS funds which invest across market segments). You are young, and are consciously taking high risk with your investments. However, the time frame of your investment between 5 and 10 years is a bit on the short end for such a portfolio. So you may want to set your mind to handle a longer period of investing. Another thing about your portfolio is lack of exposure to the large-cap segment. Markets are cyclical in nature and when some segments do well, other segments tend to flag. So, exposing your portfolio to the diversity of the market will ensure that you accrue the benefits of multiple market cycles. For that purpose, I would recommend that you reduce your mid-cap exposure by at least 20% and move that to large-cap funds—either managed funds such as ICICI Prudential Bluechip fund or index funds such as UTI Nifty Index fund.
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I want to invest in mutual funds for a period of 15 years. Please suggest suitable funds.
Fifteen years is a good long-term time frame for investing in funds, especially in the ones whose portfolios are weighted on equity markets. The key thing is that you should always—through the course of this time period —remember that you are investing for 15 years. Markets will be volatile and uneven (as they are now), but they have always self-corrected and have continued on a measured upward trend. So, keep faith and stay invested while reviewing your portfolio only on set intervals (like once a year) and not because of any market movement. If you are prepared for such an investment journey, you can invest in a set of funds that provide diversified coverage of the market in the form of touching upon all its different segments.
I presume you are going to be taking a systematic approach (SIP) to invest in funds. In that case, I would recommend a standard allocation of 30% to a low-cost index fund that tracks the largest companies in the market, another 40% split between two diversified funds, and the remaining 30% divided between a couple of mid-cap funds. This would constitute an aggressive portfolio. If you would rather take a more moderated approach, replace the mid-cap funds with short-term debt funds for the last 30%.
UTI Nifty Index fund would make a good large-cap fund, while Franklin India equity fund and PPFAS long-term equity fund would make good diversified funds. L&T Mid-cap fund and HDFC Small cap fund will round out your choices, while short-term debt funds from UTI and ICICI Prudential will provide less risky options.
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Srikanth Meenakshi is co-founder and chief operating officer, FundsIndia.com.
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