I am 36 years old and working in a private company. I started investing in July 2024 and want to build a corpus of ₹5 crore in 10 years. My current portfolio is valued at close to ₹17 lakh. I am investing ₹1.15 lakh per month through systematic investment plan (SIP). A 60% share of my monthly investment goes into mid- and small-cap funds, 15% in sectoral funds like defense and infrastructure, and the remaining goes into flexi-cap and large-cap. I want to know if my mutual fund allocation is correct as currently returns are negative. Do I need to change the SIP allocation? And Will I be able to reach my goal of ₹5 crore corpus.
-Name withheld on request
Your decision to invest in Mutual funds through SIPs for a 10-year goal is correct. Many experts and advisors have been suggesting to follow a diversified approach in mutual fund investing over the last few years. This also included limiting the allocation in mid- and small-cap funds between 15 to 25% of the overall portfolio based on your risk appetite.
The selection of fund categories in your portfolio appears to be driven by the short-term performances of these funds, and hence the allocation in these funds appears to be quite high. These funds are more volatile and carry high risk. If we consider the Nifty Midcap 150 Index and the Nifty Smallcap 250 Index, the monthly SIP de-annualized returns (as you have invested every month and not completed a year) from July 2024 till date are close to -22% and -27%, respectively.
Your question on allocation of SIP amount is fair, and there are many more investors like you who have similar questions. Since you started investing eight months ago, which was near the market peak, and there has been a correction of nearly 15% over the last six months, you need to have more patience and rework the investment strategy.
As you are doing SIPs of ₹1.15 lakh per month, you can consider making them more diversified as a well-diversified mutual fund portfolio works better during good as well as difficult market times. You can try to reduce the SIP allocation to mid- and small-cap to 15 to 20% at present and divert that amount to large-cap and flexi-cap funds. You can consider adding SIPs in some of the funds like Nippon India Large Cap Fund, Parag Parikh Flexi Cap Fund, HDFC Flexi Cap Fund, and ICICI Prudential Value Discovery Fund to balance out your portfolio across categories.
While you are at the beginning of your investment journey through mutual funds, you can also avoid sectoral or thematic funds as they are more cyclical.
Coming to your goal, if you continue to invest the same amount for the next 10 years, you could reach close to ₹3 crore if we assume a return of 12% per annum. Hence, you can try to step up your SIPs annually by 15% and that could help you reach your goal. SIPs in equity mutual funds are one of the best investment avenues for your goal, and you should continue with it. Just some changes in the SIPs along with staying the course is important in present market conditions.
Harshad Chetanwala is a co-founder of MyWealthGrowth.com.
