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Don’t dilute your portfolio by holding too many funds

  •  You would need to identify how much you need for your financial goals. This will tell you how much you need to save in order to get there.
  • Mix funds across categories to maximise your returns

I am 26 years old with all savings in bank FD and PPF. I would want a good retirement corpus and large sum to buy a house, say, 20 years from now. As I am a first-time investor, please suggest some mutual fund schemes.

—Name withheld on request

Starting early as you’re doing now is a great move. In the next step, you would need to identify how much you need for both goals. This will tell you how much you need to save in order to get there. For example, if your monthly expenses are 30,000 today, you would need to build up to 4.3 crore for retirement (assuming inflation at 6%, and a 12% return from your investments). This requires a monthly investment of 7,500. Separate the investments for both goals, to tailor your funds correctly.

For both goals, mix funds across categories to maximise your returns. You have a long time frame and that will allow you to take a little more risk to generate higher returns. First, allocate 20% in both portfolios towards short-term debt, like HDFC Short Term Debt to stabilise it. You can go up to 25-30% in mid-cap or even small-cap funds such as L&T Midcap and Franklin India Smaller Companies. If you cannot take higher risk, limit this exposure to 20%. Invest the remaining in a mix of large-cap and multi-cap funds like ICICI Prudential Bluechip, ICICI Prudential Nifty Next 50, Franklin India Equity, or UTI Equity. Review your portfolio once a year to check if your funds are still on track. Don’t hold too many funds—this will simply lead to dilution. About 4-8 funds for SIP amounts of 10,000 and more should be enough.

Srikanth Meenakshi is co-founder and chief operating officer, FundsIndia.com.

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