Dhaval Kapadia, Director, Portfolio Specialist, Morningstar Investment Adviser (India) answers queries in The Financial Express, from where the below has been taken.
My current age is 24 and I want to invest in mutual funds. Please tell me how can I start my portfolio and what will be good for me?
— Rajesh Kumar
The asset allocation i.e. the mix of various assets including equity, debt, gold, etc. held in a portfolio is considered one of the key determinants of the portfolio’s performance, in terms of risk and return.
A suitable asset allocation is typically based on one’s investment horizon and risk appetite. Generally, longer the investment horizon and higher the risk appetite, higher would be the allocation to equity. For example, if the investment horizon is 10 years and above, then 70-80% of your investment portfolio could be allocated to equity and 20-30% to debt.
In case you hold other debt investments, in the form of provident fund, fixed deposits or Public Provident Fund (PPF) etc, fresh investments could be made into two or three equity funds through monthly Systematic Investment Plans, or SIPs.
For the aforementioned investment horizon, it would be advisable to select one large cap and one small/mid-cap equity fund or diversified equity funds that invest in large, mid and small cap stocks in varying proportions based on the fund manager’s views.
If you seek tax benefits under Section 80C, then you may start a SIP in an Equity-Linked Savings Scheme, or ELSS, which typically have a diversified equity portfolio. However, it should be noted that ELSS funds carry a lock-in period of 3-years.
Additionally, one can consider investing in an International equity fund, which invests in European or Asian equity markets. International equities provide exposure to different economic drivers (vis-à-vis Indian equities), thereby helping diversify one’s portfolio.
When selecting funds, it is advisable to consider their performance over at least the previous three years to five years. This along with studying calendar wise performance vis-à-vis benchmark indices (like Sensex, Nifty, etc.) and peer group would indicate consistency across time frames and market cycles.
Additionally, you could consider the fund’s assets under management (AUM should be greater than Rs 500 crore.) and period of existence (longer the better).
