Mutual Funds

Your Fund Portfolio

Parvatha Vardhini C | Updated on: Oct 23, 2016
image caption

I am 30 and an IT professional. I started investing in mutual funds from 2015. I put in ₹1,500 each in SBI Bluechip and SBI Magnum Equity and ₹1,000 each in SBI Magnum Multicap and SBI Magnum Midcap every month. I have the following queries: Currently I invest in two large-cap funds (Bluechip and Magnum Equity). Which among the two is safer and has potential for long-term growth? I would like to restrict my investment to one of them.

Next, is it good to continue the multi-cap fund or is it better to redeem it and transfer the amount to a large-cap fund? I am thinking of partial profit booking in the mid-cap fund as I have read these are highly volatile, and move the profit to SBI Magnum Children Benefit Plan. Also, please suggest a good debt scheme to invest for the long term. I am looking to build a safe and long-term growth (10 years) portfolio.

Arun Unnikrishnan

All four funds that you are investing in come from the SBI Mutual Fund stable. While each of these funds per se is a reasonably good performer and there is nothing wrong with investing in them, putting all eggs in one basket robs your portfolio of the benefits of different strategies and investing styles followed by various fund houses.

Secondly, how much you can hold in a large-cap/multi-cap/mid-cap fund depends on your risk appetite. You are currently putting in ₹3,000 in less risky large-cap oriented funds and ₹2,000 in a multi-cap and mid-cap fund, which are considered to have a higher risk-return proposition. This 60:40 allocation suggests a moderate risk appetite. Your queries reveal some discomfort over your investments in multi-cap/mid-cap funds. Unless your ability to stomach risk is quite low, considering that you are young and have an investment horizon of at least 10 years, there is no need to opt out of funds with a higher risk profile entirely. The 10-year period gives enough time to spread the risk of market ups and downs and deliver decent returns.

Coming to your investments, for the ₹5,000 you are investing every month, two funds would suffice. You can split this as ₹3,000 in SBI Bluechip and ₹2,000 in ICICI Pru Value Discovery, a multi-cap fund. Although both the SBI large-cap funds boast of good returns over one, three and five-year periods, we have opted for the Bluechip fund over Magnum Equity, considering that it has a better consistency record. SBI Bluechip has a rolling return of 96 per cent in the last five years. This means an investment at any point in time during the last five years in SBI Bluechip had a 96 per cent chance of beating its benchmark, the BSE 100 index. For Magnum Equity, this probability stands at a lower 72 per cent, implying more volatility than the Bluechip fund. We have recommended a multi-cap fund from a different fund house instead of SBI Magnum Multicap, purely for diversification purposes.

Also, given that a multi-cap fund may be less risky than a mid-cap one and since you are new to mutual funds, we have suggested you opt out of SBI Magnum Midcap. But since every SIP needs to stay invested for one year to be free from capital gains tax, don’t withdraw the entire sums invested in Magnum Equity, Magnum Midcap and Magnum Multicap right away. You can just stop the SIPs and redirect those sums to the other two funds in the ratio mentioned above. You need not consider investments in the Children Benefit Plan for now, since this fund is also from the same stable.

For debt exposure, you can stick to long-term investments, such as PPF or bank/NBFC fixed-deposits currently. Investments in PPF help you save taxes under Sec 80C as well. Unlike PPF or FD investments, debt funds are not immune to the risk of capital erosion. You can consider debt funds at a later stage when your surplus increases and when you get more used to the idea of mutual fund investing.

Send your queries to

Published on January 16, 2018

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

This article is closed for comments.
Please Email the Editor

You May Also Like

Recommended for you