Mutual Funds

Your Fund Portfolio

Aarati Krishnan Dhuraivel Gunasekaran | Updated on September 15, 2019 Published on September 15, 2019

I am 34 years old. I would like to know if in the current equity markets, it is good to do lump-sum investments in ELSS such as Aditya Birla Sun Life Tax Relief 96 and Axis Long Term Equity Fund? My aim is wealth generation in addition to tax savings as I fall in the 30 per cent tax slab.

Mohan

The key reason why investors are asked to do SIPs in equity funds instead of lump-sum investments is that one never knows if the stock markets will fall after one’s investment date. A correction immediately following one’s investment can lead to a capital loss that usually unsettles most investors.

However, SIPs do not necessarily outperform lump-sum investments at all times. If the stock market heads higher after one’s investment date or stays sideways without any material correction, a lump sum would fare better than SIPs. Therefore, your decision to invest a lump sum rather than through SIPs would depend on your holding period and your market view.

If your holding period is 10-plus years and you are sanguine about markets, even a lump sum would serve you well. But if it is shorter, it would be safer to phase out your investments through SIPs.

Though stock prices have corrected over the past year, valuations at the index level remain quite stiff at a PE of over 25 times.

The domestic slowdown and fears of global recession also suggest that a V-shaped recovery in the stock market is unlikely.

Under the circumstances, a SIP strategy appears better. Your choice of funds is fine.

At present, I invest in the following funds through the SIP route: ₹10,000 in Kotak Standard Multicap; ₹2,000 each in SBI Magnum Midcap, HDFC Small Cap, SBI Bluechip and SBI Equity Hybrid; ₹5,000 each in L&T Midcap, ICICI Prudential Bluechip, DSP Focus and ICICI Pru Banking and Financial Services; and ₹2,000 in ICICI Pru Future Perfect. I have not done any financial planning and goals-based investment plan. Please recommend how I can rebalance my portfolio. Also suggest whether it will be good to take help from a financial planner.

Abhilash

It is always advisable to get help from a good financial planner while investing. A professional financial advisor will help you set up an appropriate portfolio based on your financial conditions, life stage and goals. Seeing your portfolio, you currently invest ₹38,000 a month across various mutual funds and ₹2,000 a month in ICICI Pru Future Perfect, a non-linked endowment insurance plan.

You have nine mutual fund schemes in your SIP portfolio. This may add complexity while tracking their performance and lead to unnecessary portfolio overlaps as two schemes from a category can own the same set of stocks. For instance, DSP Focus, ICICI Pru Bluechip and SBI Bluechip funds hold around 44 per cent of their assets (as of August 2019) in the same set of stocks. Holding 5-6 funds in the portfolio is good enough to provide you ample diversification. You have not mentioned your risk tolerance. Your portfolio, which holds 58 per cent, 23 per cent and 10 per cent of assets in large-, mid- and small-cap stocks, respectively, suits investors with medium to high risk profile.

In the large-cap spectrum, you can continue holding SBI Bluechip and stop the SIP in the other two funds — DSP Focus and ICICI Pru Bluechip. SBI Bluechip is one of the consistent performers in the category; you can increase the monthly SIP to ₹7,000 from ₹2,000 by redirecting the investment being made in ICICI Pru Bluechip. The fund has been rated five-star by BusinessLine Portfolio Star Track Mutual Fund Rating.

The ₹5,000 that is being routed towards DSP Focus can be redirected to ICICI Pru Value Discovery. This fund follows a value-investing approach and is a good choice, especially in equity market downturns. The fund has been rated four- star by BusinessLine Portfolio Star Track Mutual Fund Rating.

Between the two mid-cap funds, you can continue holding L&T Midcap and drop SBI Midcap. L&T Midcap has been rated four-star by BusinessLine Portfolio Star Track Mutual Fund Rating.

ICICI Pru Banking and Financial Services has been a better-performing fund in the banking sector category. It is a sector fund which is recommended only to highly informed investors. Sector funds are concentrated bets, going through highly rewarding phases, followed by prolonged rough patches. If you have a high risk appetite and necessary knowledge to time your entry and exit, you can hold this scheme. Else, you can sell and spread the investment across other funds.

You can continue your SIP in Kotak Standard Multicap, SBI Equity Hybrid and HDFC Small Cap. They are relatively better-performing schemes in their respective categories.

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Published on September 15, 2019
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