I am 29 and want to invest in mutual funds for the long term. I have already started investing in the following mutual funds over the last seven months, putting ₹2,000 each in ICICI Pru Balanced Advantage, Birla Sun Life Top 100 and JPMorgan India Top 100. Can I continue in these funds or switch to others? And after seven years, what returns can I expect if I continue investing in mutual funds in the same manner?

Arindam Adhikary

It is not possible to put a definite number to the returns your mutual fund portfolio can generate in the next seven years. Going by the past 10 years, quality diversified large-cap equity funds have generated about 20 per cent returns annually, but it isn’t necessary that a similar performance will play out in the coming years. To put it in perspective, if you continued investing ₹6,000 each month over the next seven years, you will be able to accumulate ₹7.9 lakh at a 12 per cent return.

Your portfolio currently has a low-risk tilt to it, with two good funds in ICICI Pru Balanced Advantage and Birla Sun Life Top 100, which mixes large-cap stocks with some quality mid-caps. But as you are young, you can take a little more risk, especially since your horizon of seven years is reasonably long.

Continue investing in ICICI Pru Balanced Advantage, but park ₹1,000 here. Increase your monthly investment in Birla Sun Life Top 100 to ₹2,500. Invest the remaining ₹2,500 in Franklin India Flexi-cap, a fund that invests across market capitalisations but still doesn’t take too many risks. Stop SIPs in JP Morgan India Top 100 fund, as it is a new fund and lacks the track record needed to judge how it will perform over the long term. Keep a watch on its performance for at least six to eight months before deciding on resuming investment. Selling the fund in less than 18 months will attract an exit load of 1 per cent. Review the fund performance regularly, and try to gradually increase your monthly investments over the years.

I am 29, and have been making monthly investments of ₹28,000 in the following funds since July 2014. I invest ₹3,000 each in ICICI Value Discovery, Reliance Equity Opportunities and HDFC Mid-cap Opportunities. I put ₹2,000 each in ICICI Banking, ICICI Balanced, Axis Midcap, Axis Equity, Axis Triple Advantage, Birla Sun Life Infrastructure and Franklin India Smaller Companies. I put ₹1,000 each in Birla Sun Life Frontline Equity, Reliance Small Cap and Quantum Long Term Equity. Could you please suggest which funds I can continue with and which can be stopped?

Kiran Babu

Your monthly investment is impressive at ₹28,000 at such a young age too. But you certainly don’t need to invest in 14 funds. It will be cumbersome to keep track of their performance; you’re also spreading your investments too thin and the fund mandates overlap.

Sector funds require timed entry and exits. So, stop SIPs in ICICI Pru Banking and Birla Sun Life Infrastructure. Also, stop investing in Axis Triple Advantage, a multi-asset fund. Asset allocation funds are not the best way to build a balanced portfolio and most don’t have a proven track record to go by. Axis Triple Advantage is also not the best performer among asset allocation funds.

Your portfolio is also tilted heavily towards mid-cap stocks, which is fine given your age. But you must invest across market caps to gain across rallies. Split your monthly amount of ₹28,000 thus. Park ₹5,500 each in UTI Equity and Axis Equity to provide stability and safety to your portfolio. Invest ₹4,000 each in Mirae Asset India Opportunities and Reliance Equity Opportunities, which mix large-caps with mid-cap stocks. Invest ₹3,000 each in ICICI Pru Value Discovery, Franklin India Smaller Companies and HDFC Mid-cap Opportunities, which have excellent long-term track records in the mid-cap space. Stop further investments in the other funds not mentioned above.

To balance your portfolio, invest in fixed deposits and bonds, PPF and gold. Real estate can be added later when you have the requisite surplus. Review fund performance regularly and make changes if required.

Send your queries to mf@thehindu.co.in

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