A reader says, “Sir, I am 26 years old. After reviewing various materials and videos about funds, I have arrived at a four-fund portfolio with all hybrid funds. Kindly suggest changes or give your thoughts on this. The funds are (1) Hdfc balanced advantage fund – (20%), (2) Icici prudential equity and debt fund – (20%), (3) Quant absolute fund – (20%), (4) Nippon India multi-asset fund – (40%).”
At 26, this is an atypical portfolio! Most people your age would stock up on mid cap and small cap funds in the hope of “getting better returns.” So I am pleasantly surprised.
At first sight, the portfolio might seem like unnecessary clutter with a lot of overlap or potential for overlap. However, age and experience have taught me that there are many ways to reach a destination (provided a plan is in place), and this is one.
That said, at 26, your portfolio is still young. So I would urge you to consider using index funds. They are the simplest to maintain, and you can focus your time and energy elsewhere.
If, however, you prefer actively managed funds and, in particular, this mix of hybrid funds, there is nothing wrong with your chosen combination. No one can say which mix of funds (active or passive) will “work” in future. We make a choice, review regularly and course correct as required. For the time being, you don’t need to do anything.
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Some considerations:
- Do not assume you are going to continue investing in these funds forever. Star ratings change; performance varies; expense ratio changes; strategies change; fund managers change; AUM swells etc. So be ready to change funds without worrying about tax. This is the main reason index funds are the best choice, especially for someone your age. Such risks are eliminated.
- In any case, do not add more funds to your portfolio.
- As and when you get additional long term goals (e.g. children’s education), you can consider using the same funds for that as well (the unified portfolio approach)
- Review the portfolio once a year from top to bottom. That is goal first (corpus required) –> asset allocation –> fund performance. Do not hesitate to rebalance the portfolio if the asset allocation deviates by 5%.
At 26, your primary goal should be financial independence; for this, you need about 50-60% of equity and the rest in fixed income. So this should be your priority. Next, your goal should be to increase your yearly investments by at least 10%. For this, your skill set and salary should increase. So focus on that. We wish you all the best.