I want to start mutual fund SIPs (systematic investment plan) with a monthly investment of around Rs. 40,000. I will turn 30 next month. I have chosen following funds for investment – Parag Parikh Flexi Cap Fund, Axis Bluechip Fund, ICICI Prudential Nifty Index, UTI Nifty 50 Index Fund (each Rs. 7,500 per month) and PGIM India Midcap Opportunities Fund and ICICI Prudential Technology (both Rs. 5,000 per month). I want to invest more in equity and distribute that between large and midcaps. I want to stay invested for up to the next 20 plus years. Also, I am comfortable with an aggressive risk appetite for the next 2-3 years. Are the chosen funds, correct?
– Name withheld on request
As per the current allocations to funds in your portfolio, you are planning to invest 57% in large-cap funds, 18% in a flexi fund and the remaining 25% divided between a sector fund and a mid-cap fund. A few observations can be made about these allocations and the funds chosen. An allocation of 57% to large-cap funds is high considering your long-term time-frame as well as your (current) aggressive risk appetite. Also, having 3 funds for this segment is an overkill since there will be considerable overlap between these funds (two funds will practically have identical portfolios). My recommendation in this regard would be to consolidate into one large-cap index fund, namely, Axis Nifty 100 Fund – a fund that will invest in the entire large-cap market space and will track the Nifty 100 Index. You can also reduce the allocation by a third, and invest Rs. 15,000 into this fund.
A second observation would be regarding the sector fund that you have chosen. Having sector funds in a very long-term portfolio is not a good idea since such funds require timing calls in terms of entry and exit. Instead, you can add another flexi-cap fund such as Canara Robeco Flexi Cap Fund. You can take this Rs. 5,000, and Rs. 7,500 from the large-cap space and make it ₹10,000 each in the two flexi cap funds in the portfolio. Alternatively, you can invest ₹15,000 in the Parag Parikh Fund and add a small-cap fund such as SBI Small Cap Fund to your portfolio at ₹7,500. The latter option would be riskier than the former, so you can take a call on which risk direction you want to move in. Once these changes are done, you will have one large-cap fund, two flexi-cap funds, and either one or two funds in the mid and small-cap space. Overall, this will represent a fair diversification in the equity market and will hopefully yield market-beating returns over the long term.
Srikanth Meenakshi is co-founder, PrimeInvestor. Send in your queries at email@example.com and get them answered by industry experts.