The right funds for the relevant tenure

By Morningstar |  06-12-18 | 
 

I am an aggressive investor. New to investing. Aged 26. My investment horizon is 10 years. These are my SIPs:

  • Aditya Birla Sun Life Tax Relief 96: ELSS
  • IDFC Tax Advantage: ELSS
  • SBI Small Cap

- Visarg Singhal

Your aggressiveness in investing which reflects in your choice of funds. All funds that you have chosen have a bent towards small- and mid-cap stocks. While these are good funds and are potential wealth creators over the long term, they can be volatile in the short term (2018 being a classic case in point). Adding a large-cap fund would add stability to the portfolio. Consider allocating 20-25% of your portfolio towards a large-cap fund such as ICICI Prudential Bluechip, HDFC Top 100 or Aditya Birla Sun Life Frontline Equity.

I started investing in mutual funds from January 2018. Risk profile is medium. Below are my monthly SIPs.

  • Mirae Asset India Equity Fund: Rs 2,000
  • HDFC Mid-Cap Opportunities: Rs 2,000
  • L&T India Value Fund: Rs 2,000
  • Axis Long Term Equity Fund: Rs 2,000

- Pavan

You are largely on the right track. You have a good mix of funds from multi cap (with a large-cap bias), mid cap and value. The ELSS fund has a large-cap bias. Continue to invest through SIPs. We are not sure what your investment time horizon is, but we recommend staying invested for at least 10 years.

Brief analyst notes:

Should I continue with these funds? I began investing in September 2017. My investment horizon is 15 years. I want to build a corpus of Rs 2 crore.

My monthly SIPs:

  • Aditya Birla Sun Life Equity Advantage: Rs 5,000
  • Mirae Asset India Equity: Rs 5,000
  • SBI Small Cap: Rs 4,000
  • Aditya Birla Sun Life Mid Cap: Rs 2,000
  • Aditya Birla Sun Life MNC: Rs 2,000
  • Invesco Midcap: Rs 2,000
  • Reliance Tax Saver: Rs 2,000
  • ICICI Prudential Value Discovery: Rs 1,000

- Lalit

A 15-year investment horizon is great and imperative for meeting your investment goals.

Looking at your current SIP amount of Rs 23,000, it will be difficult to meet your corpus goal. Increase your SIP amount every year by 15%. This will help you achieve your required corpus amount. However, do not add any more funds to your equity portfolio. You already have 8 which is sufficient, with 3 from one fund house.

You can switch from Reliance Tax Saver to another ELSS like Axis Long Term Equity. While Reliance Tax Saver is a reasonably managed fund, it has exhibited greater market beta (i.e. rises and falls more than the market and thus tends to be more volatile). Axis Long Term Equity is a well-managed strategy by Jinesh Gopani. He largely looks to invest into large-cap growth stocks and has done an excellent job investing over market cycles.

Brief analyst notes:

I have a 15-year horizon. Do you recommend any consolidation? Current value of equity portfolio = Rs 20 lakh. These are my ongoing SIPs:

  • ICICI Prudential Value Discovery: Rs 3,750
  • ICICI Prudential Bluechip: Rs 10,000
  • HDFC Top 100: Rs 7,500
  • HDFC Midcap Opportunities: Rs 7,500
  • HDFC Equity: Rs 5,000
  • Franklin Equity: Rs 10,000
  • Franklin Smaller Companies Fund: Rs 3,750
  • DSP BR SmallCap: Rs 2,500

My debt holdings are Rs 7 lakh each approx

  • Franklin UltraShort Bond
  • Franklin Short Term Income,
  • Aditya Birla Sun Life Dynamic Bond
  • Aditya Birla Sun Life Corporate Bond
  • HDFC Short Term Debt
  • HDFC Corporate Bond
  • ICICI Prudential Savings

- Sanjay

Currently you have 75% of an exposure to equity and the balance to debt, which is fair given your investment horizon.

EQUITY

Your equity allocation towards different fund types also seems reasonable:

  • Large cap: 35%
  • Mid cap: 15%
  • Small cap: 12.5%
  • Multi cap: 30%
  • Value: 7.5%

All the equity funds in your portfolio are amongst are highest rated funds and we think they are extremely well managed. You can continue to hold on to these funds.

There is significant portfolio overall lap between HDFC Top 100 and HDFC Equity (75%). Given that both funds are managed by Prashant Jain, his top picks will appear in both. The primary difference would be that HDFC Top 100 will need to invest at least 80% of his portfolio into large-cap stocks while HDFC Equity has the flexibility to increase mid-cap exposure, but typically the fund manager will retain a large-cap bias in this portfolio too.

Given the portfolio similarity, we think it would be prudent to exit one of these. You could exit HDFC Equity and replace the fund with Mirae Asset India Equity, a well-managed strategy by Neelesh Surana, who has done a phenomenal job of building out a well-diversified multi-cap portfolio (with a large-cap bias).

DEBT

  • Franklin Ultra Short Bond and Franklin Short Term Income deliver higher portfolio yields by going down the credit ladder as compared to peers. The funds are well managed and equipped to run such a strategy. But the credit risk in these funds is higher than the average peer.
  • Birla Dynamic Bond Fund has recently started adding an element of credit to their portfolio.

If you are comfortable with the credit risk, can continue to hold these funds. We think these funds are extremely well managed and the respective teams are equipped to research and manage these strategies.

Brief analyst notes:

I am 52 years of age. My holding period is 5 years. I can take a fair amount of risk. These are the funds I invest in via SIP.

  • DSP Small Cap Fund
  • HDFC Midcap Opportunities
  • SBI Bluechip
  • Franklin Templeton Fund

- Afzal

DSP Small Cap and HDFC Midcap Opportunities are not suitable for a 5-year horizon. An ideal holding period for small- and mid-cap funds would be 7-10 years. Such funds these can be fairly volatile in the short term, the year 2018 is a case in point. We would recommend you increasing your investment horizon to 7-10 years if possible. Else, switch to large (ICICI Pru Bluechip, HDFC Top 100, ABSL Frontline Equity, Franklin India Bluechip) or multi-cap funds with a large-cap bias (Mirae Asset India Equity, Franklin India Equity, HDFC Equity).

You mentioned Franklin Templeton, but never stated the exact fund.

Brief analyst notes:

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