I am 30 years old and I recently started investing in mutual funds. In my initial excitement, I invested in many schemes. I want to rejig my portfolio now. I can invest up to ₹ 20,000 a month in up to five schemes. I have a moderate to aggressive risk profile as I have no major commitments for the next three years. I have monthly investments of ₹ 3,000 each in HDFC Balanced Fund, Kotak Select Focus Fund and Tata Tax Savings Fund; ₹ 2,000 each in Mirae Asset Emerging Blue chip and Reliance Small Cap Fund; ₹ 1,000 in L&T Infra Fund; and ₹ 1,100 in Tata Equity P/E Fund. Which schemes should I continue?
It is not uncommon for a new investor to get carried away and choose to invest in several schemes. If one follows the approach of deciding on asset allocation first, followed by fund category selection, and then finally fund selection, this situation can be avoided. Most investors, however, start by looking for good funds that have done well in recent times. When they do that, it is difficult to ignore many funds, and they end up investing in too many funds.
In your case as a 30-year-old with a moderate-aggressive risk profile with potential money needs in 3 years, you could go with a 60-40 asset allocation between equity and debt. And for ₹ 20,000, you have rightly surmised that five funds are all you need. You can continue investing in HDFC Hybrid Equity (HDFC Balanced Fund renamed recently) to the tune of ₹ 4,000 a month. You can also continue investing in the Mirae Asset Fund you are currently holding for the same amount. For the remaining ₹ 12,000, you can invest ₹ 6,000 in a short-term debt fund such as HDFC Short Term Fund and split the remaining ₹ 6,000 equally between two equity funds—one large-cap (ICICI Prudential Bluechip) and one diversified (Franklin India Equity). This would give you a compact portfolio that is well spread out across market segments with a good balance between equity and debt.
I am 34 years old and I would like to invest ₹ 40,000 per month for the next 10 years. Is it wise to invest the whole amount in SIPs? What should be my investment strategy be like?
There is no problem with investing the whole amount in mutual fund SIPs. Mutual funds are not all the same—they have a variety of categories that can be used to create different portfolios. As a 34-year-old investing for the next 10 years, you can invest predominantly in equity funds, but also have some low-risk debt funds to get a balanced exposure to both the markets (stock and bond markets). The other option would be to invest some amount in mutual funds and the rest in a bank recurring deposit scheme or a gold investment scheme. Both these are inferior options to generating better after-tax returns than investing in, say, short-term debt funds or gold funds.
For your portfolio, I would recommend a 60% allocation to equity funds such as Aditya Birla Sunlife Frontline Equity Fund, Parag Parikh Long Term Equity Fund, and Franlin India Equity fund. The other 40% can go to short-term debt funds such as ICICI Prudential Short Term Fund and UTI Short Term Income Fund.
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Srikanth Meenakshi is co-founder and chief operating officer, FundsIndia.com. Queries and views at firstname.lastname@example.org