I invest 50K a month in these mutual funds: Can you review my portfolio?

Published: November 30, 2021 at 7:00 am

A 24-year-old reader who wishes anonymity asks, “I am saving around 50k every month for long term (more than 10-15yrs).  I equally invest 40k in (10k each) Parag Parikh flexi cap fund; Canara Robeco emerging equities; Union small cap fund; Axis midcap”.

“I invest in (5k each) IDFC 10 year gilt fund and HDFC developed world indexes. I also invest around 7.5k in Edelweiss balanced advantage fund for buying a car, say in 4-5 years. Could you please guide me if my mutual fund allocation is alright?”

When we responded to his email, he further added, “Apart from mutual funds, I also invest in Index ETFs(10k per month – Nifty and Nasdaq) for easy withdrawal and some amount in FDs(10k per month) and crypto(10k per month). I am very grateful and lucky to have a comfortable income. So currently, total savings is more than 60% of my total income”.

To save/invest 60% of total income is an excellent position to be in. However, your choices seem to be heavily determined by recent performance. I am afraid this is a case of shiny object syndrome resulting in 10% of this and 10% of that.

The first thing to do is stop adding any more volatile ingredients to your portfolio! It already has one thing too many! That 10% crypto exposure can swing from 2% to 25% in the overall portfolio. Are you willing to rebalance and pay the necessary tax? Or are you going to let the different components grow unchecked like wild bushes? Then there are regulatory issues around the corner.

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The next step would be to quickly build a rock-solid emergency fund (if you have not done this already). This can be accomplished via a simple bank FD (existing ones can be used) and a liquid fund. For recommendations, see Handpicked List of Mutual Funds Oct-Dec 2021 (PlumbLine).

Then we recommend building a strong fixed-income portfolio. There is no particular benefit in increasing equity exposure just because an investor is young. About 40% to 50% of the portfolio can be fixed income and provide stability to the overall portfolio.

Finally, as regards investment choices, we have the following recommendations:

  1. Stop investing in ETFs. As the investment value increases, your “easy withdrawal” requirement will change, especially when market turbulence increases. Also, it is entirely unnecessary to withdraw during market hours instantly – at least not when you are a long term investor.
  2. Parag Parikh flexi cap fund. Now, this has suddenly emerged as the darling of the young DIY investor in the last year or so – AUM of Parag Parikh Flexi Cap Fund grows by 147% in 2020! This can only mean one thing that the law of averages will strike soon, and performance will drop, or there will be better performers.
  3. Canara Robeco Emerging Equities Fund. We looked at its performance yesterday – Canara Robeco Emerging Equities Fund Performance Report. It has certainly done quite well.
  4. Union small cap fund – We do not recommend investing in small cap funds, at the very least not blindly via SIPs – Is it worth buying small cap mutual funds? And Why a SIP in Small Cap Mutual Funds is a waste of money and time.

The danger with choosing an active fund is that their performance will go through cycles and leave us frustrated for months to years. At 24, we recommend that you consider using index funds – a simple combination of NIfty and NIfty Next 50 is enough and focus on increasing your earning potential.

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