I am 38 years old, married and planning for a child. I started saving at the age of 32, but all my savings were in Post office RDs, NSCs and PPF. On the advice of a mutual fund seller, I started three mutual fund SIPs three years ago with almost negligible knowledge about them:
ICICI Prudential Value Discovery Fund- Regular (Rs. 2000 per month)
Aditya Birla Sun Life Focused Equity Fund – Regular (Rs. 1000 per month)
Nippon India Large Cap Fund – Regular (Rs. 2000 per month)
I have also invested in debt fund: ICICI Prudential. I invested Rs 1 lakh in it.
I also invested Rs 20,000 in Gold ETFs last year.
My goals were to buy a new car in five years and a house in 10 years. Also, to plan for my child’s education.
Now after educating myself for three years, I realise I’ve invested only in large cap funds. I plan to be slightly more aggressive and plan to start one SIP in LIC India Large and Midcap Fund (Rs 2,000 per month) and one SIP in Invesco India Contra Fund (Rs 2,000 per month).
Will this make my portfolio more effective? Please advise.
– Surekh Reghunathen
You should always choose your mutual funds based on your goals, investment horizon, and risk profile. You have said that you have two goals. One need to be met with five years and the other needs to be met in 10 years. The next step is to find out how much money do you need to achieve those goals. For example, you need Rs 50 lakh to buy a house after 10 years. The next step is to find out how much you need to invest to create Rs 50 lakh after 10 years. Assuming an annual return of 12%, you need to invest Rs 21,500 every month for the next 10 years to create Rs 50 lakh. Note, it is always better to also include annual inflation in your calculation. Money loses value over the years and unless you provdie for inflation in your calculations, you would find that the your corpus is not enough to achieve your goal.
Now, the final step is to choose mutual funds based on your risk profile. Here you should be careful. You do not choose a risk profile based on the prevailing market conditions and your return requirement. Your risk profile is a combination of your risk-taking ability and your willingness to take risk (this got more to do with your mental makeup). You can take an online quiz to assess your risk profile. Do not tinker with your risk profile. For example, donât be adventurous during a bull market â you will realise during a bad market that you will not be able to handle the extra risk.
Coming to you portfolio, you have invested in a value fund, focused multi cap fund, and large cap fund. These schemes have different risk and reward ratio. For example, value fund is meant for sophisticated investor with faith in value investing strategy. These funds can underperform in a bull market and could be volatile, but they can deliver in the long run. However, investor should have patience and hold to the investments.
Focused multi cap schemes have a concentrated portfolio. So, these schemes are recommended to moderate investors ready to take a little extra risk. Large cap mutual funds are recommended to conservative investors looking to create wealth over a long period without taking too much risk.
You have chosen a large & mid cap scheme and value scheme. Large & mid cap schemes have a higher risk element in them. They are meant for aggressive investors with a large risk appetite and ability to withstand volatility. We have already discussed the details of value schemes.
You should find out a reliable mutual fund advisor in your area. Ask your friends and relatives for references. Invest for a few years and gain enough knowledge and confidence before start investing on your own.