Invest in a thematic mutual fund only if you’re convinced about the sector’s growth

Invest in a thematic mutual fund only if you’re convinced about the sector’s growth

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I have been investing 25,000 in mutual funds each month through systematic investment plans (SIPs) for a year now. I am investing in ICICI Prudential Bluechip Fund, HDFC Hybrid Equity Fund, Tata India Consumer Fund, Axis Long term Equity Fund and Mirae Asset India Equity Fund. All my investments are direct plans (growth option). I want to accumulate a corpus of 5 crore in the next 15 years. At this point, I can enhance my investments by another 25,000. Am I on the right track to meet my goal or does my portfolio need to be rejigged? I have a moderate risk profile. How should I invest the additional amount?

—Kumar Y.

First, let us do the math on your goals and investments. You have said that you would like to create a corpus of 5 crore over the next 15 years. In order to get there, assuming an aggressive 12% annualised portfolio return over this period, you would need to save and invest 1.05 lakh every month.

At present, even with your additional investment of 25,000, you are only planning to invest about half of the required amount, and we can safely say that this will get you only halfway to your goal. So, in order to meet your target, you would either need to amp up your monthly investment significantly, or tone down your aspirations.

Regarding your current portfolio, I am assuming that at present you are investing 5,000 each in the five funds you have mentioned. If that is the case, you are investing 20% in a large-cap fund, 20% in a thematic fund, 20% in a hybrid fund, and the remaining 40% in a couple of diversified funds.

Overall, about 55% of your portfolio is going to a diversified set of stocks (including the equity allocation of the hybrid fund as a diversified holding). I am not in favour of having thematic funds in a long-term portfolio. So unless you have high conviction in the consumption theme over the next 15 years and you chose the fund with that in mind, I would advise you to replace it with a small-cap fund such as Franklin India Smaller Companies Fund, which has a relatively conservative style.

The additional amount you are planning to start investing can be deployed in the funds that are already in your portfolio and the recommended small-cap fund in equal proportions.

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