BackShould I invest in more than one scheme for one category of mutual funds?
An investor should diversify their portfolio across various asset classes and within the same asset class. Regularly review and rebalance investments
PremiumI am 35 and I am investing in some funds through SIPs. The funds where SIP is running are ICICI Small Cap, Kotak Small Cap, SBI Small Cap, Nippon Small Cap, HDFC Balanced Advantage Fund, Canara Robeco, and Parag Parekh. I also have some lump sum investments in 2-3 funds which I had made ten years back. Can I continue in these MFs or should I rejig my portfolio?
-Meera Yadav
By Balwant Jain, tax and investment expert
Answer: The one basic and important principle of investment is diversification i.e. asset allocation. The diversification applies not only across various asset classes but also needs to be implemented within the same asset class. This especially applies to investing in equity as an asset class. One should invest across various categories of companies/mutual fund schemes.
This diversification should also be implemented across various mutual fund houses/sectors. The broad categories for equity investing are Large Cap, Mid Cap, and Small cap. One should invest in all these categories. The proportion in which one should invest across various categories and asset classes would vary depending on the risk profile of the investors.
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You are doing SIP in four small-cap schemes out of a total of seven SIPs, which I think needs to be avoided. You need not invest in more than one scheme for investing in one particular category.
Though you are just 35 years old and presumably have a very long time frame for your goals, still I would advise you to avoid concentrating on one category of the scheme. Since you have not mentioned the exact amount of the SIP amount of all the schemes, the specific names of schemes for Canara Robeco & Parag Parekh, and the schemes and amount invested in a lump sum, it is difficult to give you specific advice on your investments, I would advise you to diversify your overall investments across various asset classes like equity, debt, and gold.
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One most important advice that you need to follow for your investments in addition to diversification is periodic review and rebalancing of your investments. So please review your investments periodically and carry out the rebalancing across asset classes and various broader categories of schemes of mutual funds. You also need to review the performance of all your schemes at least once a year and take corrective steps in case any specific scheme underperforms consistently. For investing in the large-cap category you can go for the UTI Nifty Fifty index fund. For investing in Midcap, you can invest in the HDFC Mid Cap Opportunity Fund, and for small-cap, you can merge all your SIP in the Nippon Small Cap Fund. As a thumb rule, you can invest in the ratio of 40%, 30%, and 30% of your equity allocation in the Large-cap, Mid-cap, and Small-cap categories.
(Views as expressed by the expert.)
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