I am 32. My target is to accumulate ₹4 crore by 2045 — ₹2 crore for my child’s education and ₹2 crore for my retirement corpus. I can take moderate to high risks. I invest ₹ 1,000 a month each in DSP Midcap, SBI Small Cap, Mirae Asset Emerging Bluechip, SBI Focused Equity and Mirae Asset Mid Cap; and ₹3,000 a month in the ITC stock on SIP basis. Do I need to change my portfolio or add funds? What is your suggestion on adding an index fund?

Sridip Das

It is good that you have laid out your goals and how much you need to save towards each, reasonably early in your career. Considering you are 32 now, you have 26 years until your targeted retirement in 2045, when you will turn 58. It is not clear whether you can wait the same 26 years for your child’s higher education needs. In the absence of any information, we are assuming 26 years as the time-frame for both the goals.

If you want a corpus of ₹4 crore after 26 years, you will have to invest ₹18,800 a month, assuming your SIP investments earn a reasonable 12 per cent annual return.

You currently invest only ₹5,000 a month in mutual funds and ₹3,000 a month in stock SIPs. While ITC may be a bluechip stock, we usually don’t recommend stock SIPs, as they create high concentration risk and require more monitoring. Mutual funds diversify the risk by investing in a portfolio of stocks. Hence, although you have a moderate to high appetite for risk, you can avoid stock SIPs.

Assuming you will reallocate the ₹3,000 a month you are currently investing in the ITC stock to mutual funds, you will be able to invest ₹8,000 in all, as against the requirement of ₹18,800. You can step up the investments to ₹18,800 a month if you have more surplus currently. Else, you can redirect sums from investments in any other instruments that you may be making alongside.

If not, there is no need to panic. As and when your income levels go up over the years, you can increase the SIPs and make good the shortfall to an extent. Of course, the funds can also earn more than the assumed 12 per cent and take you closer to the target, or you can also postpone your goals by a few years, if possible.

You can use online SIP/target value calculators to manipulate the variables such as target value, assumed returns and monthly SIPs to arrive at what sums/time-frames suit you.

Coming to your fund holdings, assuming you will be investing only ₹8,000 for now, you need not spread this sum across the five funds you have mentioned. Continue with Mirae Emerging Bluechip, a top-performing fund that invests in large- and mid-cap stocks, and invest ₹ 3,000 in it. Continue with SBI Small Cap — which also sports good returns over short and long time-frames — and step up your investment to ₹3,000 here. The remaining ₹ 2,000 can be invested in Kotak Standard Multicap, a fund that invests in stocks across market capitalisations and has a good track record of performance.

We have suggested this allocation keeping your moderate to high appetite for risk in mind. As and when your surplus increases, you can add more funds from across categories. The Business Line Portfolio Star Track Mutual Fund Ratings can help you choose good funds.

Index funds which carry lower expense ratios are gaining popularity now in India as an alternative to actively managed large- cap funds. A recent study by BusinessLine showed that active large-cap funds as a category either lag, or just about manage to meet, the returns of bellwether indices such as the Nifty 50 TRI, even over longer time-frames of over 10 years. (https://tinyurl.com/indexfund1)

As and when your surplus increases, you can add funds such as SBI Nifty Index Fund or ICICI Prudential Nifty Next 50 Index Fund to your portfolio.

Send your queries to mf@thehindu.co.in

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