I am 24 and have invested in 5 mutual funds can you review my portfolio?

Published: September 15, 2021 at 6:35 am

Last Updated on September 15, 2021 at 6:35 am

A viewer on our YouTube channel asks, “Sir, at present, my age is 24. For the last 2 years, I have invested in  Sbi small cap Rs. 1200 a month. Recently 4 months back, I started SIP in these funds. Mirae asset emerging Rs.  1100; Parag Parikh Flexicap Fund Rs. 1100; MO Nasdaq 100 Rs. 500 (FOF or ETF unspecified); Uti Nifty Index Fund Rs. 500”.

“Can you suggest if anything is wrong with these investments? I have about 35 years until retirement. Since 2015, I have invested Rs. 3000 a month in PPF. My total NPS govt contribution is Rs. 8750”.

You have made a good beginning. You have plenty of time on your hands to build a retirement corpus capable of fighting inflation when you retire. Whether it is portfolio creation or portfolio review, the first step is to consider asset allocation.

You are investing about Rs. 4400 a month in equity; Rs. 3000 a month in PPF and Rs. 8750 a month in govt NPS (if you have not changed the default asset allocation is 85% fixed income).

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I would recommend an asset allocation of 50% to 60% in equity and the rest in fixed income (NPS + PPF).  Your current equity allocation appears to be only 25% to 30% only.

Recommended action plan

  1. Stick to the default asset allocation in govt NPS. It will work well as a solid fixed income portfolio over the years. Your NPS contribution will increase with annual increments, DAs and promotions. So it acts as a step-up SIP. This is my experience in NPS: Ten years of investing in the NPS: Performance report.
  2. Your mutual fund portfolio seems to be heavily influenced by recent performance and trends.  Do not add any more funds!  There is no need to remove any funds as well immediately.
  3. You will need to increase the amount invested in equity. For a start, stop investing Rs. 3000 in PPF. You have a better fixed income option in govt NPS (default option).
  4. Take some time to appreciate the benefits of index investing. It eliminates fund performance risk and the need to always look for the best performers. If you can appreciate this, the invest Rs. 3000 per month (or month) into the UTI NIfty fund. See: How index funds are a game-changer in low-cost financial planning. Also, The arithmetic of index investing explained.
  5. At some point in time, the active fund you hold will start underperforming, or if the market falls, all your equity funds may be in loss. This is a wonderful opportunity to shift from active funds to passive funds without incurring any capital gains tax.
  6. Never chase after recent performers or recent trends. It is a guaranteed way to mess up your portfolio. See: Don’t make these mistakes while investing in mutual funds!
  7. If X is the total amount you can invest each month, including the total NPS contribution, about 50%-60% should be invested in equity mutual funds and the rest in govt NPS.
  8. Increase this X by as much as possible each year. Preferably X should be greater than or as close as possible to your monthly expenses at any stage in life.
  9. Just keep the PPF account alive by contributing Rs. 500 a year for now. A few years after achieving your target asset allocation, if you get a good return from equity, you shift some amount into PPF. See: This useful feature of PPF deserves more attention! Also, Why I maximized PPF investment only after ten years.
  10. Review your portfolio once a year. You should first look at the total corpus and evaluate where you are in your journey to financial independence (more about this in the next few days). Then consider the asset allocation. If the equity or fixed income allocation has deviated by 5% or more, rebalance without worrying about paying tax. If you shift from active to passive funds, the next step of worrying about fund performance is eliminated.

Never forget you need money to make money. So focus on your income and investments and not returns. I wish you all the best.

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