Mutual Funds

Your Fund Portfolio

Parvatha Vardhini C | Updated on February 22, 2020 Published on February 22, 2020

I invest ₹2,000 in SIP mode in the regular plan of SBI Banking and Financial Services Fund with dividend payout option. I plan to redeem after 20 years with greater returns. Is this the correct fund for long-term investment?

Mohan Kumar T

SIPs in equity mutual funds have the potential to generate good returns over the long term. A 12-15 per cent return expectation on your equity fund portfolio for long-term goals such as retirement or child’s education is reasonable. But the returns are contingent on choosing the right funds, keeping track of their performance regularly and shifting to better ones if needed, during your investment period.

Coming to your investments, you have chosen only one fund for long-term investment, putting all your eggs in one basket. That too, you are investing in a thematic fund focussing on banking and financial services. Thematic/sectoral funds usually go through bouts of ups and downs depending on the headwinds/tailwinds for the sector at a point in time.

Thus, they fall in the high-risk category and require timing the entry and exit to maximise returns. Thematic funds are hence not suitable for your core portfolio.

For equity fund investors, the core portfolio should be made of diversified funds investing in large/mid/small/multi-cap categories, in a proportion commensurate with your risk appetite.

Also, to multiply your wealth, choosing the growth option is always better than the dividend option, if you are investing for the long term and are not dependent on regular earnings from the fund.

In any case, mutual funds are not mandated to pay dividends regularly.

They are given out based on the available distributable surplus and the discretion of the fund management.

A recent BusinessLine analysis also shows that for most investors, the dividend option fades out in comparison with growth option when considering the tax aspect, after the recent Budget proposal to tax dividends in the hands of the investor. (How change in dividend tax impacts you - Portfolio February 17, 2020)

With regards to the fund, SBI Banking and Financial Services will be completing just five years this month, having been launched in February 2015. It is not clear as to when you began investing in the scheme.

The fund’s SIP returns since inception stand at 19.5 per cent. For lump-sum investments, over one- and three-year periods, the scheme sports returns of 28.3 per cent and 19.5 per cent, respectively.

While the track record so far has been good, for reasons mentioned above, you can stop your investments here and shift to diversified funds.

You can switch your monthly SIP of ₹2,000 to SBI Bluechip, a dependable performer in the large-cap funds category. As your investible surplus increases, you can add a few more funds to your core portfolio.

Once you have set up the core, thematic funds can form part of your satellite portfolio if you have a high risk appetite. Limit your exposure to thematic funds to 10 per cent of your overall monthly investment.

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Published on February 22, 2020
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