Public Provident Fund, PPF, mutual funds, fixed deposits, recurring deposits, small- or mid-caps, fixed income, SIP
I am 29 years old and I have been investing for over a year now. I wish to build a corpus of about ₹2 crore by the time I am 50 years old. I am currently investing in Public Provident Fund (PPF), where I utilize my entire quota of Section 80C ( ₹1.5 lakh). I will extend the account for five to 10 years. In mutual funds, I invest ₹5,000 in ICICI Prudential Bluechip fund and wish to top up with ₹2,500 each year. I invest in recurring deposits (RDs) and fixed deposits (FDs) too. I don’t have a risk appetite to invest in small- or mid-caps. Do I need to invest more in mutual funds instead of RDs and FDs?
Your asset allocation is spread primarily across debt (fixed income)—PPF, bank deposits including RDs—and a large-cap equity mutual fund. As you don’t have a risk appetite and are a low to moderate risk taker, the asset allocation is in order. However, you can consider having debt mutual funds versus FDs and RDs to increase tax efficiency along with multi-cap and large-and-mid-cap equity funds. Large-and-mid-cap is a new category which takes large- and mid-cap exposure of 35% each and the balance 30% is market-neutral. At the current asset mix with equity assumed to be 30%, your targeted return at best will be 9-9.5% before taxation; hence, you need to push a little to increase your returns over the long term.
To give you a perspective, your monthly savings need to be ₹25,000 over your targeted period of 21 years at 9.5% average return to achieve the desired goal of ₹2 crore corpus.
I am 24 years old. I invest ₹2,000 per month each via systematic investment plans (SIPs) in Nippon India Small Cap, SBI Magnum Midcap and Motilal Oswal Multicap 35. I started investing in 2017 and my investment horizon is five years. However, seeing the performance of these SIPs, I wonder if I should switch or stay. Please advise.
It has been more than two years since you started your monthly investments via SIPs. The fund selection is of an aggressive portfolio with a mid- and small-cap bias. There are three schemes—one each in multi-, mid-and small-cap categories. Any equity exposure should be taken with a period of five to seven years horizon and this is even more important for mid- and small-cap funds. You are right that the funds held by you have not performed over the last few years. Even the mid-cap and small-cap indices have performed poorly. At the same time, the funds held by you, especially the multi-and mid-cap schemes, have underperformed within the peer group also. You can consider changing them. If you want a similar portfolio with a mid- and small-cap bias, you should be prepared for a high degree of volatility. Alternatively, you can also consider large-cap or large-and-mid-cap categories.
Surya Bhatia is managing partner of Asset Managers.