I am 35 and investing in some mutual fund schemes through SIPs. The funds where SIPs are running are ICICI Small Cap, Kotak Small Cap, SBI Small Cap, Nippon Small Cap, and HDFC Balanced Advantage fund. I also made lump sum investments in 2-3 schemes ten years ago. Can I continue in these MFs, or should I rejig my portfolio?
The fundamental investment principle is diversification, i.e., asset allocation across various asset classes. Diversification applies not only across various asset classes but also needs to be implemented within the same asset class across various categories. 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, avoiding investments in various schemes of the same fund house.
MF investment: Broad categories
The broad categories for equity mutual fund investing are large cap, Mid Cap, and Small cap. Within the equity allocation, one should invest across all these categories. The proportion in which one should invest across various categories and asset classes would vary depending on the investor’s risk profile.
You are doing SIP in four small-cap schemes out of five SIPs, which must be avoided. You need not invest in more than one scheme of the same category. Though you are just 35 years old and presumably have a very long time frame for your goals, I would still advise you to avoid concentrating on one scheme category. Since you have not mentioned the exact SIP amount of all the schemes and the lump sum invested in the past, it isn’t easy to give you specific advice on your investments. I would advise you to diversify your overall investments across asset classes like equity, debt and gold.
One of the most essential pieces of advice you need to follow for your investments is that in addition to diversification, periodic review and rebalancing of your investments are equally important.
You have not reviewed the lump sum investment made ten years back. 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 compared to its benchmark.
You can use the UTI Nifty Fifty index fund to invest in a large-cap category. To invest in the Midcap, you can invest in the HDFC Mid Cap Opportunity Fund, and for the 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 Large cap, Mid cap and Small cap categories. As a thumb rule for broader asset allocation, the equity component of your overall portfolio can go up to your age deducted from 100, which comes to 65% in your case.
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Balwant Jain is a tax and investment expert and can be reached on [email protected] and @jainbalwant on his X handle.