I am a 40-year-old investor. I have been investing through the SIP route for the past two years in the following funds: ₹7,000 in Mirae Asset Emerging Bluechip Fund, ₹3,500 in Parag Parikh Long Term Equity Fund and ₹3,500 in Franklin India Smaller Companies Fund.
During the March crash I realised that I should have some debt fund as well in my portfolio. I plan to invest in the following debt funds: ₹3,500 in Kotak Dynamic Bond Fund, ₹3,500 in HDFC Corporate Bond Fund and ₹3,000 in SBI Savings Fund. I also intend to use SBI Savings Fund in similar to a bank account to park extra money that I may need in six months a year.
Please help review and suggest modifications regarding my choice of debt and equity funds. Is it a good time to start investing in the above-mentioned debt funds?
Jayanthi
A calculation of the composition of your current investments in the three equity schemes shows that around 93 per cent of your portfolio is allocated to equity assets, while the remaining is parked in debt papers. Of the equity assets, 48 per cent, 26 per cent and 27 per cent are in large-, mid- and small-cap stocks, respectively.
Mirae Asset Emerging Bluechip Fund is a large- and mid-cap fund. The scheme has been a top-performing fund since its launch. It has been rated five-star by
Parag Parikh Long Term Equity, a multi-cap fund, follows a value-focussed investment approach, which has paid off well in the long term. Its allocation to global stocks has provided diversification benefits and a good upside to your portfolio. Continue the SIP in this fund.
Franklin India Smaller Companies Fund, one of the chart toppers in the past, has not performed well over the past few years. It is rated three-star by BusinessLine Portfolio Star Track MF Ratings . However, you can continue SIPs for six more months in this fund and review it thereafter.
Your portfolio has relatively high allocation to mid- and small-cap stocks, which is suitable for high-risk investors. If you are an investor with a moderate risk profile, it is better to add a fund from the large-cap category. You can consider ICICI Prudential Bluechip Fund, which is one of the top and consistent performers in the large-cap category. It is rated four-star by BusinessLine Portfolio Star Track MF Ratings .
Debt funds play a critical role in building a sound portfolio across various stages of your life. During uncertain market conditions such as the present one, partial allocation to debt funds can help balance the risk, bringing stability to returns.
Considering your age, you may allocate 30-40 per cent of your portfolio to debt funds. However, you can decide the appropriate asset allocation based on other factors such as time horizon, goal and risk appetite. You can opt for the SIP route to invest in debt funds.
Coming to your query, Kotak Dynamic Bond Fund is one of the top-performing funds in the dynamic bond fund category. However, you can consider IDFC Dynamic Bond Fund, which is the only scheme among the 29 funds in the category that has allocated its assets only to the highest-rated debt instruments (AAA rated and G-Secs) over the last six years. It is rated four-star by BusinessLine Portfolio Star Track MF Ratings .
Investing in debt funds that allocate to only the highest-rated debt instruments can mitigate credit risk. Note that dynamic bond funds are suitable for investors with a high risk profile as they are exposed to interest-rate risk.
Instead of HDFC Corporate Bond Fund, you can consider Kotak Banking and PSU Debt Fund, which invests at least 80 per cent of its portfolio in debt instruments of banks, public sector undertakings (PSUs) and public financial institutions. Rated four-star by BusinessLine Portfolio Star Track MF Ratings , Kotak Banking and PSU Debt is one of the few schemes in the category that invest only in the debt instruments issued by banks (private and public), PSUs and government bonds.
Around 16 per cent of its assets are held in debt papers rated AA and equivalents issued by PSUs. PSUs papers are exposed to low credit risk as they enjoy a quasi-sovereign status.
SBI Savings Fund is a top-rated (four-star by BusinessLine Portfolio Star Track MF Ratings ) and relatively low-risk debt fund that invests in money market instruments. You can park your short-term money such as emergency corpus in this scheme.
You can also consider liquid funds as an alternative to bank savings account, which offer instant redemption facility of up to ₹50,000 or 90 per cent of the invested amount (per day, per scheme, credited within 30 minutes to your bank account). ICICI Prudential Liquid Fund is one of the good schemes in the liquid category.
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