Want to invest in mutual funds but don’t know how to go about it?

Get all your mutual fund related queries answered by our expert, Himanshu Srivastava, senior research analyst, Morningstar Advisers India, on our show Mutual Fund Corner.

Q: 36-Year-old Aneesh Prabhakaran writes to us from Kerala. I am investing Rs 4,000 in Aditya Birla Sun Life Focused, Rs 5,000 each in HDFC Hybrid, HDFC Midcap, ICICI Value Discovery, Franklin India Equity and Rs 3,000 in Reliance Tax Saver for 15 to 20 years period through SIP. I started it in 2016. Can you please advise if I need to remove or add some fund?

A: Your long-term investment focus is noteworthy, and you are at an age which still gives you enough time to prudently plan your investments.

While it's important to select the right funds in a portfolio, it's equally important to have a right asset allocation mix. Depending on your age and investment horizon, you can consider adding debt funds to your portfolio with an allocation to them in the range of 30-35 percent. The balance can be in equities. This allocation can be reviewed periodically depending on how closer you are to your investment objective and if there is a change in your risk appetite among others.

You have HDFC Hybrid fund in your portfolio, but I am not sure if its an equity or debt option. But despite that, you can add some pure debt funds in your portfolio.

Some of the debt fund across categories which you can consider are –

Your portfolio of equity funds is well crafted with a good mix of growth and value style funds and diversified/focused strategies. Although you don’t have a pure large cap fund in your portfolio your investments in Aditya Birla Sun Life Focused and Franklin India Equity Funds with their large-cap bend makes up for that.

You can retain these funds in your portfolio, plus you can consider adding a small cap fund if your risk profile allows.

Some of the funds that you may consider from the smallcap category are –

Q: 28-year-old Himanshu Modi writes to us from Pune. I am Interested in building longterm wealth using equity portfolio. My goal is to have Rs 3 crore Rs corpus (Principal + Gain) by the age of 40. I want to take advantage of recent market correction and invest. I can invest Rs 6 lakh now and further, I can invest Rs 60,000 every month for the next 12 years. I have researched and shortlisted below funds.

Kotak Standard Multicap fund - Growth.

HDFC Small Cap Fund - Growth

ICICI Prudential Bluechip fund.

Can you please guide me if this portfolio of funds is good for the next 12 years.

A: With the amount that you have, you may fall short of your target corpus assuming that you earn a return of 12 percent per annum without accounting for inflation. To achieve your goal, either you have to increase your investment horizon or monthly contribution to Rs 80,000. This and your lumpsum investment will help you meet your goal.

While the three funds that you have selected are well-managed funds, there is a need to diversify your portfolio a bit more. You can consider adding another large-cap fund and a mid-cap fund to your portfolio going ahead.

Some of the funds you can consider are –

Q: 29-year-old Mohit Patodi writes to us from Rajasthan. I am earning Rs 30,000 per month. I am investing in Rs 10,000 in mutual funds through SIPs for the last two years. I want a corpus of Rs 5 crore in 25 years. I am Rs 2,000 each in ICICI Bluechip Fund, ICICI Value Discovery, HDFC Midcap, HDFC Small Cap, ABSL Hybrid 95 and Emerging Bluechip Mirae Asset. I am also planning to invest Rs 2,000 per month in ICICI Pru Multicap. Are my funds are good for my target?

Your funds are good, and you can continue to invest in them. Most of these funds have a positive Morningstar analyst rating.

However, you might have to increase your SIP amount to around Rs 25,000 to achieve your goal i.e., assuming an annual return of 12 percent.

From the financial planning perspective, you can consider diversifying your portfolio by adding debt funds to it. Taking your age into account, you can start building your debt portfolio which can be around 35 percent of your overall portfolio. This would provide a much needed stability to your portfolio during market downturn.

Q: 30-year-old Ashok Kumar J writes to us from Tamil Nadu. I am investing Rs 2,000 each in ABSL FrontLine Equity, Kotak Standard Multicap Fund, L&T India Value Fund and Reliance Smallcap Fund through SIP for past one year on regular cum growth option. My goal is to create a long term wealth and planning to invest for around 15 years. What’s your view?

A: You are on the right track. Most of the funds which you have chosen to invest are well managed funds and you can continue your investments in them. You also have a long-term investment horizon which is desirable.

However, what you need to create long term wealth is an effective and well-crafted financial plan and for that, you should consider opting for the services of an investment advisor. Based on your need, current status, income, liabilities and risk appetite, an advisor will help you create a financial plan with the right asset allocation mix, funds and apt amount to be invested. This will give you a better perspective where your portfolio stands currently and its prospects of meeting your financial goals.

Coming to your portfolio, one of the funds where you can consider stopping your SIP is Reliance Smallcap Fund. The fund has witnessed a change in its manager last year. It was earlier managed by Sunil Singhania who was one of the best mid/small cap managers in the industry. However, with his exit, the fund’s past track record holds little relevance.

Some of the small funds you can consider adding to your portfolio are:

Additionally, if your risk appetite permits then you can consider adding a mid-cap fund to your portfolio. Both mid and smallcap funds are good wealth creator over the long term, but they tend to be volatile in the short term.

However, your exposure to large-cap stocks should be higher than mid and smallcap funds combined as they are more stable in nature and play an anchor’s role in an investor’s portfolio.

Q: 30-year-old Abhishek Soni writes to us from Mumbai. I have started SIP of Rs 6,000 last year. I have increased it to Rs 18,000 last month. My goals are my retirement, children education and their marriage. My questions are: How much I need to invest to achieve goals? Is my portfolio well diversified? Is there any changes required in portfolio for long term? I have invested Rs 3,000 each in Canara Robeco Emerging Equities – Direct Growth, Invesco India Contra Fund – Direct Plan Growth, Mirae Asset India Equity Fund – Direct Plan – Growth, Franklin India Prima Fund – Direct- Growth, Reliance Tax Saver Fund – Growth and Aditya Birla Sun Life Tax Relief 96 Fund – Growth.

A: At 30, the age is on your side and you have clearly defined goals which are commendable.

If I have to arrange your goals in a chronological order, Child education will be first, their marriage will be second and the last would be your retirement.

For your first question – how much you should invest, I don’t have all the information required to answer this perfectly. So I have to make few assumptions here to atleast give you a sense how it would work. Assuming that you have 17 years before you reach your first goal that is child’s higher education, the amount that you are investing currently though SIP should be sufficient to provide for your child’s higher education within India.

But this won’t be enough to provide for all the goals which you have set for yourself. So gradually as you progress, and you have more investible corpus, you must increase your investment amount.

Remember that there are a lot of factors which go into long term financial planning exercise which are not available to me for evaluation. Hence, it would be advisable to take the help of a financial advisor, who would help you draft your financial plan.

Coming to your portfolio, frankly speaking, it needs some makeover. One you don’t have a large-cap fund in your portfolio, so you need to add that. Some of the large-cap funds that you can consider investing are: -

Q: 40-year-old Samir Kumar Pandey writes to us from Bengaluru. Investing Rs 9,000 in Axis Focused 25 Fund – Direct Plan – Growth, Rs 9,000 in ICICI Prudential Bluechip Fund – Direct Plan, Rs 9,000 in Kotak Standard Multicap Fund – Direct Plan, Rs 9,000 in HDFC Mid-Cap Opportunities Fund – Direct Plan, Rs 9,000 in Mirae Asset India Equity Fund – Direct Plan and Rs 5,000 in Franklin India Feeder – Franklin US Opportunities Fund – Direct Plan from the last 6 months. I want to continue these SIPs for at least 10-15 years as I am planning for retirement corpus of around Rs 3-4 crore. I want to know if this SIP amount will help me to achieve my goal in 15 years from now. Also, suggest me if the following mutual fund plan is the best plan or I need to make some changes to my SIP portfolio.

A: With the current investment amount, you should be able to reach closer to the retirement corpus which you have set for yourself. However, I would recommend you try and increase the SIP amount every year by 10 percent for better results.

Your fund selection is good, and the portfolio is reasonably well-diversified across different strategies. It’s also noteworthy that you have provided an additional degree of diversification to your portfolio by adding a global fund which is Franklin US Opportunities Fund.

Going ahead, you may consider having some additional exposure to a small cap fund based on your risk profile. Though over the short term, mid and small cap funds can be volatile, over the long term they are a good generator of wealth.

Besides, you can also consider adding exposure to debt funds if you haven’t done so far. You can select funds from the Ultrashort, Low duration and short-term categories.

I am not sure what your risk appetite is but given your age and if you have a moderate risk appetite, your portfolio could have 60-65 percent equities and balance in fixed income.

Q: 30-year-old Sudipta Chatterjee writes to us from Jharkhand. Investing in MFs for past 1 year or so. I am having a horizon of 10-12 years. I am a moderate risk taker. My Portfolio is as below. I have invested Rs 5,000 per month in SBI Bluechip, Rs 3,000 per month in Mirae Asset Emerging Bluechip, Rs 1,000 per month in Motilal Oswal Multicap 35, Rs 4,000 per month in Axis Long Term Equity Fund, Rs 1,000 per month in Reliance Small Cap Fund. Is my Portfolio fine in regards of diversification? Any changes that you recommend?

A: First, I would recommend you diversify your portfolio across asset classes i.e., equity and debt funds if you haven’t done that. Getting the right asset allocation is the first step towards meeting your financial goals.

Given your age and risk appetite, you can have 60 percent of assets in equities and 40 percent of assets in debt funds.

You can consider debt funds from ultrashort, short-term and corporate bond categories. You can also have some exposure in credit funds as well.

Coming to your portfolio, most of the funds you have invested in are well managed funds and I hope that you understand the investment proposition that each of these strategies offers. From a diversification perspective, you can consider adding a mid-cap fund to your portfolio. Having said that, large-cap funds typically play an anchor’s role in the portfolio as they are more stable in nature. So the allocation in them should be higher than the mid and small cap allocation combined.

There is one change which I would like to recommend in your portfolio. Going ahead, you can divert the investment you are making in Reliance Small Cap Fund to another smallcap fund. Reliance Small Cap Fund witnessed a change in manager in early 2017. Hence, the fund doesn’t have a long-term track record under the current manager.

Some of the other well managed small-cap funds which you can consider are:-

Q: 29-year-old Pallaw Saraogi writes to us from Hyderabad. I am going to start my investment into mutual funds. I am late to start on investing, but knowing the fact the sooner the better will start now. Keeping in mind the upcoming elections what should be a good idea to invest in mutual funds. I have a monthly limit of Rs 10,000-12,000 and can increase as and when required. My goal would be getting to Rs 1 crore by the age of 42.

Well! its better late than never.

However, with the current investment amount and the time horizon that you have set for yourself, it would be difficult for you to achieve your goal of getting Rs 1 crore. For this either you have to increase your monthly contribution to around Rs 30,000 in equity investments, or you have to increase your investment horizon.

Coming to your view on investing keeping in mind the upcoming elections, I would like to state here that it’s a short-term event and hence you need not have to focus on it much. Also, election cannot be a premise over which you can build your investment portfolio.

I am not sure about your risk appetite, but assuming you are a moderate risk investor you can invest 60-65 percent of assets in equities and balance in debt funds. The equity portion can be diversified across large, mid and small cap fund with large caps having higher allocation compared to mid and small cap funds combined. On the fixed income side, you can consider funds from Ultrashort, short, credit and corporate bonds categories.

Here are some equity and debt fund which you can consider for making investments.

Equity –

Debt –

Q: 28-year-old Ranjan Mallick writes to us from Kolkata. I have invested in SBI Bluechip, ABSL Frontline Equity, Kotak Std Multicap, L&T India Value, HDFC Midcap Opp, Franklin India Focused Equity, HDFC & L&T Hybrid Equity and ABSL Tax Relief ’96. I want to stop Franklin India Focussed Equity Fund and both Hybrid Funds and switch out to HDFC Midcap Opp and L&T India Value funds respectively. The rest, I want to continue.

A: Most of the funds in your portfolio are good funds and you can continue your investments in them.

Given that you have not mentioned the reasons for exiting the funds, it would be difficult for me to comment on the same.

However, I would like to share some of my thoughts here.

One of the funds you are exiting is Franklin India Focused Equity. It's is a part of a focused category and it offers an aggressive investment proposition given funds from this category can invest in a maximum of 30 stocks. Hence, these funds tend to have concentrated portfolio. So, the investor must have the requisite risk appetite to invest in them. If they don’t have that, then it's better to stay away from them.

Hybrid equity funds, most of which were erstwhile balanced funds, offer a compelling investment proposition as they provide investors the benefit to invest in two asset classes by investing in one fund. One should have allocation to these funds in a portfolio as it provides another level of diversification.

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