I'm a 25-year old salaried professional investing. Every single month I invest Rs 4,500 monthly in certain funds: HDFC Small Cap (Rs 500), Mirae Asset Tax Saver (Rs 500), Mirae Asset Large Cap (Rs 1,000), SBI Focused Equity Fund (Rs 2,000), ICICI Prudential US Bluechip Equity (Rs 500).
I would like to increase my investment by another Rs 500. What would you suggest? Is a balance advantage fund a good choice? My current investments are around Rs 91,507. This is for retirement.
Its impressive that you have started to invest and plan your retirement corpus at such a young age. With age on your side, you can build a sizeable investment corpus for yourself with prudent investing.
Your current portfolio looks fine and going ahead you can build and construct your portfolio around that.
My suggestion would be to increase the amount of money invested every single year, even if it is by a small amount. It will make a huge difference. You can read about that in 5 steps to start an equity portfolio.
You already have a global exposure through ICICI Prudential US Bluechip Equity, which can continue. Investments in global funds add another degree of diversification to the overall portfolio. We have tackled global investing in detail here.
- You can get aggressive with equity.
Given your age and investment horizon, and considering you as high-risk taking investor, you can consider investing 80-85% of assets in equity-oriented funds and 15-20% of assets in debt-oriented funds.
Of the overall portfolio, you can invest around 40% of assets in large-cap funds, 25-30% in mid-cap funds and 15-20% in small-cap funds. A well-diversified portfolio is better positioned to ride testing times. Large-cap funds, due to their stable nature, should be the anchor your portfolio.
Mid and small cap funds would provide a kicker to the portfolio when these segments hit a purple patch. They are a high-risk, high-return investment proposition. While they can be extremely rewarding during certain market phases, they can also cause severe dent during adverse environments. Therefore, long-term is the key when it comes to equity.
I have no idea about the rest of your portfolio, so it is difficult to comment.
The first step is always to get the right asset allocation mix.
To balance the risk on the equity side, you can invest 15-20% of assets in fixed income funds from ultrashort, money market, short-term or corporate bond categories. This portion would provide a cushion to the portfolio during stock market downturn.
- What about balanced advantage funds?
Within the defined allocation range, and given their aptness in the portfolio, you can include funds from hybrid/allocation categories.
Balanced Advantage Funds adjust their direct equity exposure based on whether overall market valuations are expensive or cheap. A pre-determined investment model is set in place. For example, if is on the basis of Price-to-Book Value, then if the market’s P/B ratio is low (based on historical values), the fund raises its direct stock exposure. Same with the P/E ratio.
So the equity portion is dynamically managed. You could opt for such a fund, but we would suggest having a debt fund in place to offer overall stability to your portfolio. Do read, Should you invest in dynamic asset allocation funds?
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