Mutual Funds

Fund Query: Should I continue my SIPs?

Parvatha Vardhini C | Updated on May 30, 2021

I invest ₹15,000 a month in Axis Bluechip, Axis Focused 25, Axis Midcap, Mirae Emerging Bluechip, Canara Robeco Flexicap and Kotak Flexicap; ₹10,000 a month in Kotak Emerging Equity, Can. Rob. Focused Equity and Invesco India Midcap; ₹5,000 a month in Can Rob Bluechip and Can Rob Flexicap and ₹20,000 a month in SBI Small Cap. All investments are in direct options, growth plan.

I have an accumulated corpus worth ₹25 lakh in all these funds put together (including about ₹1.1 lakh from Axis Long Term Equity where I have stopped SIPs now). I plan to buy a flat in Bengaluru during 2024, at around a cost of ₹2.50 crore. What would be my corpus if I continue all my SIPs till December 2024? Please also suggest if any re-alignment of funds is required.

Karnad M K

Rising sharply from the lows of March 2020, the stock markets are at a peak now, with the bellwether Nifty 50 index touching new highs last week. While there are opinions that the markets will continue to rally, a third Covid wave, continuation of FPI pull-out from the Indian markets as witnessed in the last two months, as well as a correction in US markets due to inflation worries can all have an impact on Indian equities. Hence, you need to be prepared for a market correction from here on.

For long-term investors whose goals are 7-10 years away, the correction should not matter much. In fact, it could be a good chance to average costs as well as pick up some good stocks for his/her portfolio. But your case is different. Your goal of purchasing a house is just about three years away. A three-year time frame is not long enough for your portfolio to go through a market fall and then deliver a return commensurate with the risk associated with equity investments.

Thus, you will be taking a very high risk if you leave your accumulated corpus afloat and must be prepared for a dwindling of the corpus if you choose to do so. We suggest that you sell the ₹25 lakh that you have accumulated so far in a few tranches, taking into consideration the returns that you have made on the individual funds as well as the short/long-term nature of the capital gains. The latter will help you optimise the tax outflow from the gains you have made. You can reinvest this corpus across bank, post-office and AAA-rated NBFC/Corporate deposits for a 2-3 year timeframe. This will help preserve your capital as also fund the down-payment of your house to an extent. You can also liquidate your other investments partly to meet the down-payment, so that you reduce the home loan burden.

So, what should you do with the monthly SIP outgo of ₹1.5 lakh that you have been having so far? We don’t have information of your age, your work/family profile or your other goals and whether you have any separate savings towards other goals. Assuming you are middle-aged and have 15-20 years to go for retirement, you can continue to set aside the ₹1.5 lakh as you are doing currently, for SIPs. This can be directed towards your retirement. A 10-12 per cent compounded annual return over this period is a reasonable expectation.

Coming to your funds, there are two observations. You have a little over 50 per cent exposure (in terms of your SIP contribution) to higher risk mid and small-cap funds as well as focused funds. About one-third of your SIPs are in medium risk flexicap and large & midcap funds and less than 15 per cent in low risk large-cap funds. This suits someone with a moderate to high risk appetite. If your risk appetite is not in sync with the allocation, you may have to redirect from mid-/small-cap and focused fund categories to others.

Most of the funds you hold are rated either 4 or 5 star by BL Portfolio Star Track MF Ratings. Although you hold more than one fund in every category, you can continue to hold them as long as you can monitor their performance on a regular basis and weed out the under-performers. Can Rob Flexicap alone is rated 3-star while Can Rob Focused is a recently launched fund. Keep a closer watch on these funds.

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Published on May 30, 2021

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