About three years ago, taking the cue from your column, I started investments in mutual funds through Systematic Investment Plans (SIPs).

I decided to allocate 40 per cent of my portfolio to Goldman Sachs CNX-500 (VIP), 15 per cent to HDFC Top-200, 10 per cent each to Mirae Emerging Blue Chip and SBI Emerging Business Fund and 25 per cent to DSP Blackrock Micro Cap fund.

The SIPs are continuing as of now. Within the allocated funds, I have spread them into two to three SIP dates within a month in every fund to overcome volatility.

Now that the index has come up from the bottom it has experienced in the recent past, the profits on these funds (on the total investment) stand at 10, 20, 16, 28 and 16 per cent, respectively.

I also have other one-time investments in Birla Agri Commodities and Quantum Long Term Equity Fund which are not very satisfying when compared with the other above investments. I want to exit them.

The VIP in Goldman Sachs CNX-500 would also end in a month. Should I book part or full profits on these investments even if it would mean bearing exit cost? If so, in which funds?

I am willing to continue SIPs in all or few of them along with any other new funds being suggested (subject to a maximum of six and without gold funds) for the next five years. My ability to take risk is medium.

Surendra Babu, Hyderabad

It would have been good to know what goal you are saving towards and when you hope to attain it. That would have a bearing on your strategy and choice of funds. But you have planned out your investments quite well in terms of fund choices and timing.

The decision to have a mix of large and mid-cap funds in your portfolio along with an index fund is a good one. Staggering your SIPs across different dates should also reduce the risk of entering at the wrong times.

But having done all this, it is essential to stay invested in the equity market for a minimum five years to reap its rewards. This is because a complete market cycle in India — a rising phase followed by a correction and a revival — usually takes three years.

If you have invested towards a long-term financial goal, just stick with the SIPs until two years before the goal.

While you must not stop investing or exit equities today, you could, however, rejig your portfolio to improve its performance and reduce risk. The 25 per cent rally in the markets in the last eleven months could expose your portfolio to risks from any correction. Here are our suggestions for the rejig.

About 45 per cent of your monthly savings are currently allocated to mid and small-cap funds. These funds have outperformed in the recent rally.

But with the valuations of small-cap stocks catching up with blue-chips, they could be subject to downside if a correction happens.

Therefore, it may be good to switch some investments from mid-cap to large-cap funds. This is especially as you mention that you can take on only medium risk.

We would also suggest redeeming Mirae Emerging Bluechip to invest the proceeds in Franklin Flexicap, where the fund manager has the flexibility to move between large, mid and small-cap stocks, based on valuations.

You also have rather a large portion of your portfolio (40 per cent) invested in a passive fund — Goldman Sachs S&P 500 Fund. That is a good strategy in a choppy market because passive funds tend to limit losses much better than actively managed ones.

But if you plan to hold on to your equity investments for the long term, having a higher active component may help.

We would suggest investing half of the sum that you are now putting into Goldman Sachs S&P 500 Fund into a good balanced fund such as HDFC Balanced Fund or Franklin Templeton Dynamic PE Ratio Fund.

This will limit risk and also make sure your portfolio participates in any further equity market rally.

Overall, we suggest the following allocations:

20 per cent in Goldman Sachs S&P 500 Fund

20 per cent in HDFC Balanced/FT Dynamic PE

10 per cent in Franklin Flexicap

10 per cent in SBI Emerging Bluechip

15 per cent in HDFC Top 200

25 per cent DSP BR Microcap

We would suggest you continue to invest in Quantum Long Term Equity. The fund’s one-, three- and five-year records are quite good relative to peers, so we see no cause for concern.

Birla Agri Commodities is a thematic fund. It may require active tracking and is not ideal for SIP investments.

We suggest you retain investments in it, but do not commit fresh money through SIPs.

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