Mutual Funds

Fund query: SIPs for long-term wealth creation

Parvatha Vardhini C | Updated on February 13, 2021

Please guide me on my investments. I am 36 years old, have a high risk appetite, and am saving towards long-term wealth creation in 10-15 years. I have been investing ₹5,000 a month each in L&T Emerging Business (from April 2017), HDFC Top 100 (from 2017), HDFC Small Cap (October 2018) and ICICI Prudential Bluechip (October 2018), and ₹2,000 a month each in DSP Midcap (April 2017), ICICI Prudential US Bluechip Equity (April 2019) and Axis Midcap (April 2020).

Appasaheb Pacharne

It is appreciable that you are saving in mutual funds to meet your long-term goals. A time period of 10-15 years is comfortable enough for equity funds to go through market ups and downs and give inflation-beating returns. An overall portfolio return of 12 per cent at the end of the time period is a realistic expectation.

Two suggestions here: If you don’t have any specific goal to be met in 10-15 years, you can extend the time horizon to save towards your retirement at 60. Also, you can increase your SIP amounts as your income increases, and also create separate portfolios for different goals such as down payment for a house and children’s higher education. A little more than half your monthly MF investments go into the high-risk mid- and small-cap category and another 8 per cent into an international fund. This is in sync with your high-risk appetite. Axis Midcap is rated 5-star by BL Portfolio Star Track MF Ratings, while DSP Midcap is rated 3-star. You can continue your SIPs here but keep a watch on the latter and move out if the ratings fall further.

With respect to the small-cap funds, HDFC Small Cap has a 2-star rating while L&T Emerging Business is not rated by us as it does not have a minimum of seven-year NAV-history. In terms of SIP performance over the last three- and five-year periods, these funds have not been among the top quartile-performers in the small-cap category. SBI and Nippon India small-cap funds are among the better ones here.

Among your large-cap funds, too, HDFC Top 100 is a laggard. Instead, you can consider switching to a low-cost Sensex or Nifty 50 index fund from the same fund house.

Exposure to US-focussed funds is a good idea considering the low correlation between the Indian and US markets over the long term and the benefit of rupee depreciation for Indian investors (3-4 per cent annually).

But keep in mind that international funds need not constitute more than 10 per cent of your portfolio.

I am a small investor in mutual funds and now a senior citizen. I have benefited from your kind advice over the years. While renewing SIPs in two schemes, my son set up SIPs for a very long term of 900-1,000 months: ICICI Prudential Balanced Advantage - Direct, Growth — ₹24,00 per month, present status is SIP 19/965; UTI Mastershare - Direct, Dividend — ₹18,00 per month, present status is SIP 22/957. Is it possible to ensure that the SIPs end much earlier, say, in the next one year or so? Alternatively, since the Sensex is hovering around 50,000 points, will it be good to stop the SIPs right away?

RL Gaur

Yes, it is possible to cancel your SIPs before the 900-odd months that your son has opted for. Usually, fund houses allow you to cancel SIPs after a minimum of six SIPs.

Assuming your son has invested in direct plans through the fund house’s website, he can use the same route to cancel his SIPs. If not, platforms that help in direct investing also provide the option.

Alternatively, a ‘SIP Cancellation Form’ can be downloaded from the respective mutual fund house’s website, filled up, signed and submitted. A cancellation notice must be received by the fund house 30 days prior to the subsequent SIP date in order to execute the instruction. That said, whether he should stop now or one year later should be a function of the goals he is investing for and the time-frame required to reach them.

The very idea of opting for the SIP route is to avoid timing the market and, hence, if he does not have any near-term requirement, he need not exit just because the benchmark indices are touching new highs.

Your son need not go for the dividend option in any fund if he does not depend on this for supplementing his income. Fund houses are also not mandated to pay dividends regularly. He can choose the growth option to benefit from compounding. Also, the dividends are taxed in his hands at the slab rate.

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Published on February 13, 2021
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