I am a 52-year-old salaried professional from Ahmedabad. I have been investing in various MFs for more than six years. My primary goal is retirement, which is around eight years away. Over these years, I have accumulated a corpus of around ₹20 lakh, of which: 31 per cent (₹6.23 lakh) is with Axis MF (Axis BlueChip, Axis Focussed 25 and Axis MidCap); 29 per cent (₹5.70 lakh) is with Mirae MF (Mirae Emerging BlueChip and Mirae LargeCap); 22 per cent (₹4.37 lakh) is with Parag Parekh MF (FlexiCap fund); 15 per cent (₹2.90 lakh) is with Kotak MF (Kotak Emerging Equities and Kotak FlexiCap) and balance with other MFs.

I have SIPs running in Parag Parikh FlexiCap, Mirae Emerging BlueChip and Kotak Emerging Equities of ₹ 10,000 each. I read somewhere that it is not advisable to have more than 25 per cent corpus with a single AMC to spread the risk. Is it true?

If yes, I have already exceeded this cap for Axis MF, Mirae MF and will soon for Parag Parikh MF. Which other AMC can I explore for further investing, primarily in FlexiCap fund category? I wish to avoid Kotak FlexiCap due to its high AUM.

Shailesh Singh

Going by the details you have shared with us, three issues need to be addressed. The first is your question on whether having over 25 per cent allocation to a fund house in your portfolio raises risk levels. There is no straight ‘yes’ or ‘no’ to this question. Primarily, the adage ‘Don’t put all your eggs in one basket’ holds good and hence, diversifying investments across fund houses is a good strategy. Situations like the debt fund troubles at Franklin MF or the recent issues on front-running at Axis MF support this point. But there is no hard and fast rule that only 25 per cent of your original investments/current corpus should be with one fund house. Having said this, you can redirect your investments from one fund/fund house to another, based on overlaps or performance. For example, both Axis Midcap and Kotak Emerging Equites are mid-cap funds and are rated 4-star by BL Portfolio Star Track MF Ratings. Both are similar sized, having AUM of about ₹18,000 crore to ₹20,000 crore. If you want to trim exposures to Axis MF, you can redirect some sums to the Kotak Emerging Equities fund. From a portfolio perspective also, having one mid-cap fund may be sufficient. Similarly, instead of two large-cap funds — Axis Bluechip (rate 4-star by us) and Mirae LargeCap (rated 5-star), you can redirect some sums to a large-cap index fund.

The next is your need for another flexi-cap fund, apart from the existing/ongoing investments in Kotak Flexicap (rated 3-star) and Parag Parikh Flexicap (rated 5-star) and your concern on the former’s size. The Parag Parikh fund is slightly different from the rest in the flexi-cap category, having flexibility to invest 35 per cent in international stocks (currently a bit restricted due to MFs breaching overall cap on overseas investments). Otherwise, in this category, as you are rightly pointing out, Kotak Flexicap has the highest AUM of about ₹36,000 crore. While in a mid- or a small-cap fund, a high AUM can be an impediment to being able to invest in liquid stocks at desirable price levels, it may not be as much a concern in a flexi-cap fund. But then, if you do want other choices, Canara Robeco Flexicap (4-star) and PGIM India Flexicap (5-star) are options. However, as explained above, there is no need to have so many flexi-cap funds in your portfolio. You can alternately opt for value funds such as ICICI Pru Value Discovery that follow a different style of investing and can complement your current choices.   

Third is the choice of funds vis-à-vis your goal timelines. You seem to have been a bit of a late-starter to investing in MFs for your retirement. While you have rightly chosen equity funds (which entail higher risk than debt or hybrid ones) so far to accelerate the savings, you may have to take a relook at this strategy at least two-three years before retirement. Closer to reaching your goal, protecting your nest egg should take priority, lest a market meltdown at that point in time erodes the corpus. Move your corpus to liquid funds/FDs based on the prevailing interest rate scenario two-three years before you retire.

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