I am 30 years old. I am investing ₹2,000 a month each in Franklin India High Growth Companies and Axis Long-Term Equity for the last six months. I now wish to start another investment of ₹2,000 a month. Is it good to take up a pharma fund or a small-cap fund for higher return over five years? I also have equity stock portfolio of ₹50,000. I have a PPF account and have invested in bank FDs too.

Shibashis

Going by the fact that you have direct exposure to equities, you seem to have a high risk appetite. Also, considering your age, it is good that you are willing to take high risk for high returns. You are also rightly balancing out your investments between equity and debt via PPF and bank FDs.

But there are some observations to be made about your mutual fund portfolio. A multi-cap fund in Franklin High Growth, a tax-saver fund in Axis Long-Term Equity and a desire for another pharma or small-cap fund aligns with your high risk appetite.

But at the same time, your choices don’t have too much focus. Moreover, you are also looking to invest in pharma/small-cap funds, segments in which there is a bit of froth right now, for a relatively shorter time period.

Since you are young, you can use mutual funds to save for long-term goals such as your retirement instead of looking at shorter time frames such as five years.

Hence, you can use the additional ₹2,000 towards building a core portfolio of large-cap oriented funds with a good track record and then have multi-cap or mid and small cap funds as part of the satellite portfolio. Therefore, invest this amount in Mirae Asset India Opportunities fund, a solid performer. The fund normally maintains a tilt towards large-cap stocks.

I am 33 years old and earn around ₹1.5 lakh a month. I did not opt for PF since I earlier had EMI commitments. Now I wish to save towards my retirement through mutual funds for the next 20 years.

I have chosen the following funds to invest ₹3,000 each: Birla Sun Life Front Line Equity, Franklin Prima Plus, Reliance Equity Opportunities, Sundaram Select Mid-cap and ICICI Pru Dynamic Fund. Please advise if these are suitable.

Prasad KB 

It is good that you have chosen to save for your retirement through mutual funds. If you invest ₹15,000 per month for 20 years, and your funds earn a conservative 12 per cent compounded annual return, you will have a corpus of ₹1.5 crore.

Coming to your choice of funds, it is appreciable that you have predominantly zeroed in on good funds and also taken care to have a mix of large, mid and multi-cap funds in your portfolio.

Since you have a horizon of at least 20 years, you can give up on ICICI Pru Dynamic, which is a conservative fund. Although a multi-cap fund by nomenclature, it has significant exposure to large-caps and also takes high debt and cash calls.

Rejig your portfolio as follows: Allocate ₹4,000 each to Birla Sun Life Frontline Equity and Franklin Prima Plus. Invest ₹3,500 in L&T Value fund, a better performing multi-cap fund than Reliance Equity Opportunities. The remaining ₹3,500 can go to Canara Robeco Emerging Equities or Mirae Emerging Bluechip. These are superior to Sundaram Select Midcap.

As your surplus increases, you can allocate more towards your mutual fund investments, so that you will be able to get a bigger corpus. At the same time, remember that it is good to diversify into debt in order to have a balanced portfolio. PPF is one of the best instruments to start with.

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