I am 35 and work for a software company. My monthly income is ₹1.2 lakh. After deducting household and loan expenses and investments in PPF, RD and insurance, I save about ₹35,000. I started SIPs in the following funds and invest ₹5,000 in each of these schemes: ICICI Pru Focused Bluechip, HDFC Equity, HDFC Top 200, HDFC Prudence, HDFC Midcap Opportunities, IDFC Premier Equity and UTI Opportunities.

These investments are for my retirement at 55, for which I need a corpus of ₹50 lakh, and for my two-year-old son’s education in his 16th year, for which I would need ₹30 lakh.

My risk appetite is moderate. Please suggest modifications that I may need to my portfolio to reach all my goals.

- Vivek CNS

You are investing a fairly large sum of money every month in equity mutual funds. Of course, it is good that you have made adequate investments in debt as well. By insurance, we hope you mean taking a term cover and a medical policy. These two alone would suffice for protecting your corpus. In case you have invested in any traditional or unit-linked plans, please exit them after the minimum lock-in period. These are high-cost products that offer neither high sum assured nor adequate returns.

Coming to your portfolio, you have invested in four schemes from the same fund house. Diversification is not just about choosing different schemes. It is also about getting into different fund houses to benefit from varied investing styles and reduce concentration risks.

There also seems to be no focus in the way you have chosen the funds in your portfolio. Besides, your return expectations appear very moderate. The amounts that you have stated for your retirement and your son’s education can be easily achieved just by investing in safe debt instruments.

If you invest ₹35,000 every month for 20 years (when you turn 55), you will end up with a corpus of ₹2.6 crore, if annual returns are 10 per cent. What’s more, even in 14 years’ time, by when you would need funds for your son’s education, with this ₹35,000 you can accumulate ₹1.27 crore, with the same return assumptions made earlier.

So, even if you withdraw ₹30 lakh for your son’s education, you will still be left with a little under ₹1 crore in 14 years itself. If you exit units at that time and invest the sum in a bank FD, you will comfortably earn more than double your intended corpus.

Now, coming to your portfolio, some safe large-caps and balanced schemes would do for you. Exit HDFC Equity, HDFC Top 200 and HDFC Prudence, which have proven long-term record but have not been performing as well as top peers in recent years. Retain ICICI Pru Focused Bluechip and UTI Opportunities and invest ₹5,000 in each. Add Birla Sun Life Frontline Equity and Franklin India Prima Plus and park ₹5,000 in both these funds. Invest ₹5,000 in Tata Balanced.

Now, HDFC Mid-Cap Opportunities and IDFC Premier Equity are high-quality mid-cap funds that have excellent track record across market cycles. Given your low return expectations and moderate risk appetite, you need to take a call as to whether you need these schemes in your portfolio, as mid-cap funds can be a tad risky.

In the interest of better returns, however, you may continue with these funds, especially as your goals are fairly long term in nature. If you do not wish to take more risks, opt out of one of these schemes and add Quantum Long Term Equity instead, which is a predominantly large-cap fund.

You will thus have large-, mid- and hybrid funds, which would make for a balanced portfolio. Monitor the schemes in your portfolio regularly and take corrective action, if necessary. Rebalance the portfolio periodically and book profits or exit units in case you reach your target ahead of estimated time.

As you grow older, you can reduce exposure to equity and increase weightage to debt instruments. You have covered equity (through mutual funds) and debt (through PPF and RDs). If you have purchased a house, then you are almost there in terms of perfect asset allocation! Take a term cover for at least ₹1 crore online and a medical policy with family floater option for ₹10-15 lakh.

Send your queries to >mf@thehindu.co.in

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