Which MFs should you invest in for an investment horizon of 5 years?

 

Even with high risk taking ability, such high exposure to volatile and aggressive funds can be avoided.

My son (36) is currently a resident of US and is investing in seven mutual fund schemes through monthly SIP for the last four years. These include ₹7,500 each in SBI Blue Chip Fund, SBI Focused Equity Fund, Axis Multicap Fund and Mirae Asset Emerging Bluechip Fund and ₹5,000 each in ABSL MNC Fund, DSP Small Cap Fund and Franklin India Flexi Cap Fund.

He can invest for another five years and his objective is wealth creation. Is he on the right track?

-Name withheld on request

Apart from SBI Bluechip, the remaining funds are on the aggressive side with significant mid-cap or small-cap exposure, resulting in an extremely high-risk portfolio. Even with high risk taking ability, such high exposure to volatile and aggressive funds can be avoided. Moreover, some funds have also turned out to be underperformers. You can restructure the SIP as follows: Continue with the same SIP with SBI Bluechip and Mirae Asset Emerging Bluechip. Start a new SIP of ₹12,000 in SBI Nifty Index Fund, which will reduce the overall portfolio risk. Going for passive funds in the large-cap space is becoming a better option.

To reduce overall risk take SIP in SBI Focused Equity and Axis Multicap as low as ₹5,000. But note that Axis Multicap is a very new fund with no established track record; The limited return history of the fund does not present a clear picture. Monitor the performance of the fund and take corrective steps as and when required. Start a new SIP of ₹8,000 in Nippon India Small Cap. DSP Small Cap has not been a great category performer and you might miss out there.

This restructuring also means that you need to stop SIPs in ABSL MNC - Among MNC funds, it is the worst performer. Note that the portfolio remains highly aggressive and requires a high degree of risk appetite. If you want to reduce the risk further, replace the multicap fund with a hybrid aggressive fund. You can continue with the investments made in all the funds where the SIP has been discontinued. Review the portfolio once a year to ensure that the fund continues to perform well.