I am 33 years old. I have just started the following SIPs (regular, growth plans) three months ago: ₹3,000 in Canara Robeco Small Cap, ₹2,000 in Axis BlueChip and ICICI Pru Debt & Equity, and ₹1,000 in Nippon India US Equity Opportunities. I plan to retire at 50 years and currently my net salary is ₹55,000. I have no home loan EMIs. Have I made the right choices? If my target is ₹1 crore, what should my monthly investments be? 

Parthipan

It is good that you have made a start with mutual fund investing for long-term retirement goals. Currently, your monthly investments are equally divided between relatively lower-risk and higher-risk categories. Large-cap funds and aggressive hybrid funds are lower-risk funds and are generally known to contain losses better in falling and volatile markets. Axis BlueChip is from the large-cap category, while ICICI Pru Equity & Debt belongs to the latter. You are investing ₹4,000 a month in these two funds put together. The remaining ₹4,000 is going into relatively higher-risk small-cap and international funds. Axis BlueChip and ICICI Pru Equity & Debt are rated 4 star and 5 star respectively by bl.portfolio Star Track MF Ratings, while the other two are unrated. The reason for the non-rating is that Canara Robeco smallcap is a relatively new fund with less than a five-year track record. Many existing international funds in India follow different investing styles and hence an apple-for-apple comparison may not be possible. This is why the Nippon fund is not rated.

As a beginner investor, you can continue with the ICICI Pru and Axis funds.   

Index funds are good substitutes for actively managed large-cap funds and they come with lower expense ratios too. If you have some investible surplus every month now or sometime soon, you can consider large-cap index funds for your core portfolio. We have recommended Nifty 100 index funds in the Big Story on “Shubh Laabh ideas for Diwali” . Nifty and Sensex index funds are also a good fit.

As far as the small-cap fund goes, while the category may be suitable for you since you are a long-term investor, make sure you have the high risk appetite required for investing in small-caps. If you want to continue in this category, funds with an established track record such as SBI Small Cap or Nippon Small Cap can make a better fit.

Considering the sharp corrections in the US markets this year, it may be a good time to take exposure to US stocks for diversification purposes. But rather than building a core portfolio with only pure international funds, you can consider funds such as Parag Parikh Flexicap alongside. This invests at least 65 per cent in domestic stocks and the remaining in international equities. This fund has an excellent track-record as well.

Coming to your ₹1-crore target, if you need this amount at the time of your planned early retirement at 50 — which is 17 years from today — you need to invest about ₹15,000 in SIPs every month, assuming a 12 per cent portfolio returns (CAGR) on all your funds put together. Of course, some of the shortfall can be made up if you step up SIPs as your earnings improve over the years. You may earn higher returns than the assumed 12 per cent too. If you push your retirement age to 60, you need to invest only ₹4,000 in SIPs every month for the next 27 years to reach the ₹1-crore goal. That said, is ₹1 crore enough to meet your retirement needs? Most likely not. Keeping your spending requirements and the possible inflation in mind, work out the ideal retirement corpus for you with a financial advisor or a financial planner. From this, you should back work the monthly savings required to meet your goals. Ideally, your savings should be in a mix of asset classes — equity, debt, gold and a mix of instruments.

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