Mutual Funds

Your Fund Portfolio

Parvatha Vardhini C | Updated on July 05, 2020 Published on July 05, 2020

I am 53 years old and have been investing in equity mutual funds since 2005. I started with a monthly SIP of ₹5,000, which was gradually increased to ₹1 lakh and has now been reduced to ₹75,000 for the past three months.

I also invest around ₹60,000 every month in short-term debt funds, bank and post office RDs, and PPF for the purpose of short-term needs.

The monthly SIPs are as follows: ₹10,000 each in Axis Multicap, Kotak Standard Multicap, HDFC Small Cap and Mirae Asset Emerging Bluechip; ₹11,000 each in Motilal Oswal Multicap and HDFC Mid-Cap Opportunities; ₹8,000 in Franklin Focused Equity; and ₹5,000 in Mirae Asset Midcap.

I have also beeing running a weekly STP of ₹3,000 in Axis Long Term Equity and ₹2,500 in Mirae Asset Emerging Bluechip for the past two months. Please guide me. I intend to continue my equity investments for another 10 years.

Ajiths

Although you have began investing in mutual funds only at 38 years of age, you have given yourself a reasonably comfortable 25 years (up to 63 years of age) to save for long-term goals such as retirement. It is also good to note that you have stepped up the investments over the years, as your income levels expanded.

Though you have mentioned that you have reduced the SIPs to ₹75,000 a month now, your total monthly investments still work out to ₹97,000, if we include the two systematic transfer plans(STPs).

There are a few observations about your investments. One, since you have been doing STPs only during the last two months, we assume that you have adopted this route to take advantage of the market volatility.

However, you need to keep in mind that STP transactions are regarded as redemption for the purpose of capital gains tax. Hence, each of the weekly sums that are moved from a source scheme (such as a liquid fund in which you may have invested a lump sum in) to a target scheme (Axis Long Term Equity and Mirae Asset Emerging Bluechip) will be subject to capital gains tax.

Also, you have chosen a tax-saving fund (ELSS - Axis Long Term Equity) for this purpose where. While Axis Long Term Equity is no doubt a top-performing fund and rated five-star by BusinessLine Portfolio Star Track MF Ratings, you need to check if you are okay with the lock-in. You need to check if you are okay with this kind of lock-in.

If you opt for the new tax regime from 2020-21, wherein you have to forego the benefit of Section 80 C deductions for lower tax rates on your income, you need not invest in a tax-saving scheme at all. Even if you opt for the old tax regime and if you have other investments such as PPF, EPF, etc, for the 80C limit of ₹1.5 lakh, an investment in a tax-saving fund will not be required.

Since you already invest in Mirae Asset Emerging Bluechip through the SIP route, it is also not clear as to why you have chosen the same fund for an STP.

A second observation is about your investments for short-term needs.

Short-term debt funds do mitigate interest-rate risks, but you need to choose funds that also invest predominantly in instruments with high credit ratings, so as to minimise credit risk.

While bank FDs and RDs suit the purpose of investing to meet short-term needs, PPF investment is not for the short term. The PPF is a 15-year instrument, and withdrawals prior to that are allowed only for certain select reasons and with restrictions prior to that.

Coming to your portfolio, you invest about 45 per cent of your monthly SIPs in high-risk, mid-cap, small-cap and focussed funds, while the remaining is in moderate-risk multi-cap and large- mid-cap category funds. This suits someone with a medium risk appetite. Most funds you hold (barring Axis Multicap, Mirae Asset Midcap, which are very new) are rated three- to five-star by BusinessLine Portfolio Star Track MF Ratings.

You can continue your SIPs as of now. Keep a close watch on the performance of the new funds as well as the ones rated three-star (HDFC Small Cap, HDFC Mid-Cap Opportunities and Franklin India Focused Equity). You can choose better funds if you find that their performance continues to lag peers or if the ratings fall.

As you move closer to retirement, you can consider slowly shifting from equity to debt to cap erosion in wealth due to any market downturn at the time of retirement.

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Published on July 05, 2020
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