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Photo: iStock
Photo: iStock

It's better to avoid investing in sectoral MFs when building long-term portfolio

Sectoral funds are not a good fit for long-term portfolios and can be avoided

I am investing 1,000 each per month in ICICI Prudential US Bluechip Equity and Motilal Oswal S&P 500 Index; 500 each in Invesco India Contra, Motilal Oswal Nasdaq 100 and Axis Nifty 100 Index; as well as 100 in Nippon India Pharma. I have also been investing in Axis Bluechip fund. All are direct growth plans. I am 22 years old and have a high-risk appetite. I want to know if my portfolio is good and what changes I need to make.

— Aditya Singh

You have a good mix of funds in your portfolio, with both domestic and overseas markets covered. However, in the domestic market, the portfolio is tilted towards large-cap funds, in both active and passive investment options. Except the contra fund and the pharma fund, other equity funds are large-caps. You can substitute one of the actively managed funds with a diversified fund such as Kotak Standard Multicap or Invesco India Growth Opportunities.

Also, having a pharma fund at 100 is not of much use. Sectoral funds are not a good fit for long-term portfolios and can be avoided. At 100 a month, it does not contribute meaningfully to the overall portfolio either.

I am 48 years old and was investing 6,000 per month till recently in Aditya Birla Sun Life Frontline Equity. The scheme was not performing well its returns fell down further due to the covid-19 pandemic. I am still holding the systematic investment plan (SIP)—total invested amount 1,34,000 with a market value of 1,08,000. From June, I have started investing 5,000 in SBI Equity Hybrid Fund for my daughter’s education, which I will be requiring in 2025. I have also initiated an SIP of 3,000 in Axis Bluechip Fund of around 10,000 for wealth creation. Moreover, I started a step-up SIP of 2,000 for 10 years in Kotak Standard Multicap for wealth creation. My risk appetite is moderate. Is my fund selection good? How much can I accumulate in 10 years?

—Name withheld on request

It is not clear whether you are still running the SIP in ABSL fund. If you are, you can go ahead and stop it. Please hold on to the units until the entire amount is withdrawable without exit load (in a year) and then you can exit the fund (and add it to the corpus for your daughter’s education). Other than that, the two funds that you are investing for wealth creation purposes are good funds and assuming 11% annualized return over the 10 years, you can hope to receive about 11 lakh at the end of the tenure (from a total investment of 6 lakh). I am not accounting for the step-up factor since I do not know the step-up amount. For your daughter’s education, the fund is a good option for a five-year period and should give you about 4.5 lakh to 5 lakh at the end of the tenure.

Srikanth Meenakshi is co-founder, PrimeInvestor.in. Queries and views at mintmoney@livemint.com

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