Don't Do This! Fix Your Mutual Funds Portfolio Allocation | How Much to Invest in SIP Per Month

Summary

This video script offers guidance on investing Rs. 40,000 across four mutual fund categories: hybrid/balanced advantage, large cap, midcap, and small cap funds, considering investment horizon and risk tolerance. It explains the nature of each category, their historical returns, and suggests portfolio allocation strategies for different investment durations. The script emphasizes the importance of diversification and tailoring investments to individual risk profiles, aiming to optimize returns while managing risk.

Takeaways

• 💡 Investing in mutual funds requires a strategic allocation based on market behavior, risk, and potential returns, rather than equal distribution across all chosen categories.
• 📈 There are four main types of mutual funds discussed: large cap, midcap, small cap, and Flexi/multicap, each with distinct risk profiles and expected returns.
• 💼 Large cap funds are considered less risky within the equity category and are suitable for investors with a 5-year or more investment horizon, offering steady growth with 11-12% post-tax returns.
• 🏙️ Midcap funds carry higher risk and are appropriate for investors with an 8-year or longer investment horizon, with potential returns of 12-14%.
• 🏭 Small cap funds are the riskiest, suitable for those with a 10-year or more investment horizon, and can offer higher returns of 14-18%.
• 🔄 Hybrid or balanced advantage funds offer a mix of equity and debt, with the latter actively managed to balance risk and returns, suitable for shorter investment horizons of 5 years or less.
• 🌐 Flexi/multicap funds provide diversification across large, mid, and small cap stocks, with varying degrees of manager control over allocation, suitable for a 7-year or more investment horizon.
• 💹 The suggested portfolio allocation for a Rs. 40,000 investment across the four categories is 35% large cap, 25% midcap, 15% small cap, and 25% Flexi/multicap.
• 🔍 Investment decisions should consider individual risk tolerance and investment horizon, as the suggested allocations are not one-size-fits-all.
• 👤 The speaker, Ranjan, emphasizes the importance of understanding different mutual fund categories and their characteristics to make informed investment choices.
• 🔗 Links to specific mutual funds for each category are provided in the video description for viewers who want detailed information.

Q & A

What are the four main categories of mutual funds discussed in the script?

The four main categories of mutual funds discussed are large cap mutual funds, midcap mutual funds, small cap mutual funds, and flexicap or multicap mutual funds.

Why is it not advisable to invest the same amount in each of the four mutual fund categories?

It is not advisable because each category has different market behavior, risk levels, and potential returns. Investing the same amount in each does not take into account these differences.

What are the two main factors that determine how much money should be invested in each mutual fund category?

The two main factors are investment horizon, which is the time frame for the investment, and the risk factor, which is the investor's tolerance for risk.

What is the difference between hybrid funds and balanced advantage funds?

Hybrid funds are a mix of equity and debt funds with a fixed allocation. Balanced advantage funds, a type of hybrid fund, are actively monitored and have their equity and debt allocation adjusted according to market conditions to minimize risk and maximize returns.

For how long a period can one expect post-tax returns of 9% to 11% from balanced advantage funds?

One can expect these returns over a period of 4 to 5 years from balanced advantage funds.

What is the suggested allocation for a portfolio with a 4-5 year investment horizon?

For a 4-5 year investment horizon, the majority of the portfolio should be allocated to balanced advantage funds, for example, 70-80% of a 10,000 rupee investment.

What is the expected post-tax return from large cap funds in the long term?

In the long term, one can expect an 11 to 12% post-tax return from large cap funds.

What is the suggested portfolio allocation for large cap funds if an investor has 10,000 rupees to invest?

The investor should consider allocating around 35% of the 10,000 rupees, or 3500 rupees, to large cap funds.

What is the expected return from midcap mutual funds and what is the suggested portfolio allocation for them?

One can expect 12 to 14% returns from midcap mutual funds. The suggested allocation for a 10,000 rupee investment would be 25%, or 2500 rupees.

What are the risks and returns associated with small cap funds and what is the recommended investment horizon for them?

Small cap funds carry the highest risk among the categories discussed and can offer returns of 14 to 18%. The recommended investment horizon for small cap funds is 10 years or more.

What is the suggested allocation for small cap funds in a portfolio and what is the risk level associated with them?

The suggested allocation for small cap funds is around 15-20% of the total investment, or 1500 rupees for a 10,000 rupee investment. The risk level is high.

How do flexicap or multicap mutual funds differ from other categories and what is their expected return?

Flexicap or multicap mutual funds offer a diversified mix of large cap, midcap, and small cap investments, with either a fixed allocation (multicap) or flexible allocation based on the fund manager's discretion (flexicap). The expected return is around 12 to 13% post-tax.

What is the suggested portfolio allocation for multicap or flexicap funds and what is the recommended investment horizon?

The suggested allocation is 25%, or 2500 rupees for a 10,000 rupee investment. The recommended investment horizon is 7 years or more.