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I want to build a corpus of 35 lakh in the next 10 years. For the past two months I have been investing 2,000 each in Axis Focused 25, Axis Midcap, Axis ESG Equity, Parag Parekh Long Term Equity and ICICI Prudential US Bluechip Equity. Please review my choice of funds.

—Arvind Singh

To save 35 lakh in 10 years, you will need to increase your monthly investment. At present, assuming a reasonable 12% annual return, you may be able to build about 23 lakh.

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You seem to have picked funds based on current performance. While international diversification is good for a portfolio, going overboard needs to be avoided. Since Axis ESG and Parag Parikh Long Term Equity also invest in overseas stocks, your international exposure works out to be about 30% of your current monthly investment. Ideally, such exposure should be at most 15-20% of your portfolio.

Continue systematic investment plans (SIPs) in Axis Focused 25, Axis Midcap, Parag Parikh Long Term Equity and ICICI Pru US Bluechip. Stop SIP in Axis ESG, and start in Aditya Birla Sun Life Corporate Bond. This will reduce the international exposure and introduce debt into the portfolio, which is needed to counter equity market volatility. If you wish to avoid debt funds and you have other debt investments, replace Axis ESG with Kotak Standard Multicap.

Also, try to avoid having too many funds from the same asset management company (AMC). Most fund houses tend to have an overarching investment philosophy, therefore, if it goes through a period of underperformance, multiple funds in your portfolio may be affected. Always try to blend styles in your portfolio.

I have two goals—daughter’s education (15 years away) and my retirement (30 years away). Should I invest only in equity funds or have debt in the mix too? If yes, what should be the proportion of equity and debt? Also, should I change the proportion eventually? Please suggest some funds. My wife and I can together invest 50,000 per month.

—Sameer T.

An all-equity portfolio will be subject to far higher volatility than an asset-allocated portfolio. Unless you have a very high-risk appetite and can pull through corrective periods without a hitch, putting all your investments in equity is best avoided. This apart, booking profits when equity runs up sharply is also easier to manage when you have an asset-allocated portfolio. Third, depending on the extent of equity volatility, you may even wind up with better returns if you have some debt allocation.

The mix between equity and debt depends on your risk level. It can go from 50% in equity if you’re conservative and to 80% in equity if you’re very aggressive. Typically, moderate risk investors can go with a 65-75% equity allocation. The funds in turn depend on the amount you are allocating towards each goal.

You can have the same asset allocation for both goals, or be more aggressive in your retirement portfolio as it is further away. Ideally, maintain separate portfolios for each goal as it enables better allocations at an asset level and fund level. It also allows better management to ensure that you are on track to meet your goals.

Therefore, it would be hard to suggest funds without more details. A few pointers can help you choose funds: one, use a mix of fund styles to build a diversified portfolio. Cap allocation to aggressive funds (mid-cap and/or small-cap) at 30% at the highest risk level. Don’t go by fund category to decide funds or build in diversification—always go by the portfolio allocation to large- or mid- or small-cap stocks. In debt, consider funds from the corporate bond, short-duration, banking and PSU funds or gilt categories. Avoid funds with high exposure to papers rated below AA+.

Review your portfolio once a year. When you are three-four years away from your goal, book out of equity and move to safer assets if you are near to or have achieved your desired sum. Else, take steps to course-correct.

Srikanth Meenakshi is co-founder, Queries and views at

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