February 26, 2020

Top 10 Best SIP Mutual Funds to invest in India in 2020

In this article, I will share my Top 10 Best SIP Mutual Funds to invest in India in 2020. Yearly I will publish my Top 10 Best SIP Mutual Funds to invest in India. Continuing that trend, I will publish the list for 2020.

Earlier I used to publish the list well in advance may be before January. However, this time it was delayed as I was messed up with my Fee-Only Financial Planning tasks. I am receiving huge client inflow that turning to be hectic for me. Hence, I delayed posting this yearly post on time. Many asked me through comment and email that when I am publishing the post. I promised them that I will publish it before February 2020. Accordingly, I am publishing the post.

Let us recap of what major changes happened during 2-3 years in Equity Fund place (I am not discussing here about the debt funds issues as this post is meant for equity funds).

Two major things happened to the Mutual Fund industry during the 2018 years.

# SEBI Recategorization-SEBI came up with a new set of categorization. This was a huge shock to the Mutual Fund Industry. Because many funds are forced to merge with similar funds offered in the AMC. Also, this gave the investors about the clarity of the fund types. (Refer my post “SEBI Mutual Fund Categorization and Rationalization – How it helps investors? “). However, due to this big change, Large Cap may suffer to beat the index.

# TRI (Total Return Index)- When you invest in stocks, there are two types of benefits. One is price appreciation in the stock and another is dividend income. Earlier the mutual fund companies use to benchmark the indexes which are not inclusive of dividend income. With new SEBI ruling now all mutual fund companies are forced to benchmark the respective TRI Index for their funds.

There was again a rumor that SEBI is once again thinking of recategorization of funds. It is confirmed also during the last SEBI Board Meeting that they are seriously considering to recategorization process. However, even if such changes happen, I hardly change my stance immediately.

Before proceeding further, I wish to make sure what are the basics of investing while investing. Many fail to understand the basics of investing and simply jump for fund selection and start investing. It is the most dangerous activity you are doing with your hard-earned money.

Why I have to invest?

Before a BLIND investment, it is always best that you must know the reason for your investment. Hence, before jumping into investment read what I am sharing below.

You must have a proper Financial Goal

I noticed that many investors simply invest in mutual funds just because they have some surplus money. The second reason may be someone guided that mutual funds are best in the long run compared to Bank FDs, PPF, RDs, or even LIC endowment products.

If you have clarity like why you are investing, when you need the money and how much you need money at that time, then you will get better clarity in selecting the product. Hence, first, identify your financial goals.

You must know the current cost of that goal. Along with that, you must also know the inflation rate associated with that particular goal. Remember that each financial goal has its own inflation rate. For example, education or marriage cost of your kid’s is different inflation that the inflation rate of household expenses.

By identifying the current cost, time horizon and inflation rate of that particular goal, you can easily find out the future cost of that goal. This future cost of the goal is your target amount.

I have written a separate post on how to set your financial goals. Read the same at “Financial Goals – How to set before jumping into investing?

Asset Allocation is MUST

Next step is to identify the asset allocation. Whether it is a short-term goal or long-term goal, the proper asset allocation between debt and equity is a must. I personally suggest the below-shared asset allocation strategy. Remember that it may differ from individual to individual. However, the basic idea of asset allocation is to protect your money and smoothly sail to reach the financial goals.

If the goal is below 5 years-Don’t touch equity product. Use the debt products of your choice like FDs, RDs or Debt Funds.

If the goal is 5 years to 10 years-Allocate debt:equity in the ratio of 60:40.

If the goal is more than 10 years-Allocate debt:equity in the ratio of 40:60.

While choosing a debt product, make sure that the maturity period of the product must match your financial goals. For example, PPF is the best debt product. However, it must match your financial goals. If the PPF maturity period is 13 years and your goal is 10 years, then you will fall short of meeting your financial goals.

Return Expectation

Next and the biggest step is the return expectation from each asset class. For equity, you can expect around 10% to 12% return. For debt, you can expect around 6% to 7% returns.

When your expectations are defined, then there is less probability of deviating or taking knee-jerk reactions to the volatility.

Portfolio Return Expectation

Once you understand how much is your return expectation from each asset class, then the next step is to identify the return expectation from the portfolio.

Let us say you defined the asset allocation of debt:equity as 40:60. Return expectation from debt is 6% and equity is 10%, then the overall portfolio return expectation is as below.

(60% x 10%) + (40% x 6%)=8.4%.

How much to invest?

Once the goals are defined with the target amount, asset allocations are done, return expectation from each asset class is defined, then the final step is to identify the amount to invest each month.

There are two ways to do it. One is a constant monthly investment throughout the goal period. Second is increasing some fixed % each year up to the goal period. Decide which suits best to you.

I Hope the above information will give you clarity before jumping into equity mutual fund products.

How many mutual funds are enough?

How many mutual funds do we have? Is it 1, 3, 5 or more than 5? The answer is simple…you don’t need more than 3-4 funds for investing in mutual funds. Whether your investment is Rs.1,000 a month or Rs.1 lakh a month. With a maximum of 3-4 funds, you can easily create a diversified equity portfolio.

Having more funds does not give you enough diversification. Instead, in many cases, it may create your portfolio overlapping and leads to underperformance.

Taxation of Equity Mutual Funds for 2020-21

Remember that Equity Funds and Debt funds are taxed differently. Hence, you must understand the taxation part as well before jumping into investment. I tried to explain the same in the below image.

Mutual Fund Taxation FY 2020-21

The rate of taxation is as below for the FY 2020-21 is as below.

Mutual Fund Taxation FY 2020-21

Below is the DDT Rates applicable to Mutual Funds after the Budget 2020.

DDT for Mutual Funds FY 2020-21

I hope the taxation part is clear to all of you. If you still have doubt, then refer my latest post ” Mutual Fund Taxation FY 2020-21 (AY2021-22)“.

I am moving to Index Funds

Yes, last year in large-cap space, I recommended the Index Funds. The rest of the funds were active funds. However, this year, I am recommending large-cap and mid-cap funds in Index Funds itself. I am slowly coming out from relying on fund managers’ ability to beat the index at a high cost. Instead, I am adopting the low-cost index funds.

What are the criteria to choose the Best Index Funds?

# Expense Ratio:-Lower the Expense ratio is better for me.

# Tracking Error:-It is nothing but how much is the fund deviated in terms of returns with respect to the Index it is benchmarked. Lower the tracking error means better the fund performance.

# AUM:-Higher the AUM means better the advantage for the fund manager to manage the liquidity issues.

By adopting the Index investing, you are ending the search for BEST MUTUAL FUND COMPANY and BEST FUND MANAGER. The only risk you can’t avoid is market risk, which you have to manage it by proper asset allocation between debt and equity (I mean at the portfolio level).

However, adopting Index investing requires lot of patience. Because even though many claims to be patience, they take knee jerk reaction when the market starts to fall.

The negativity of Index Funds is that there is no downside protection as the fund manager has to replicate the index. He can’t take his call and make sure to keep in cash mode during the market fall. Hence, the Index Funds will fall equally like Index.

During this phase, many investors start to compare the Index Funds with Active Funds (which may be managed the downside protection well) leading to come out from Index Funds.

However, if one did the proper asset allocation with debt and equity (within equity also) with respect to their goals, then we can easily protect such a downfall at the portfolio level.

Paying a higher fee for active funds ist justified only if the fund manager generates more than ONE PERCENT compare to Index Funds CONSISTENTLY. If it is not possible, then there is no point in adopting the active funds.

Today morning I was reading a wonderful book “Winning the Loser’s Game” by Charles D Elles. I wish to share one image of that book with you all (even though many may argue that it may not be applicable to India. But I feel Index Investing is the future for India too. If you noticed, many AMCs sensing this opportunity, launched and launching many Index Funds).

Active Vs Passive

You noticed that only around 32% of equity mutual funds outperform the S&P 500 from the period of 1989-2008. I am lucky enough if my investment is with that 32 % of the funds. Otherwise, there is no point in paying higher fees to active fund managers. Data may look old of almost 12 years. However, what if such an event happened in India?

It is the toughest task for ME and YOU to find such a RAREST of RARE SPECIES (FUND MANAGER) who can generate CONSISTENTLY more than 1% higher returns than the BENCHMARK.

Because of all these returns and after a lot of reading, I adopted the Index investing (Thanks to John C Bogle also).

I am not saying that all the funds are Index Funds. However, in the case of Large and Mid-Cap, I am recommending Index Funds. I am going to stay away from any Small Cap Funds. Along with Large and Mid Cap Funds, to create certain downside protection within the equity, I am recommending either Hybrid Fund or Multi-Cap Funds.

Top 10 Best SIP Mutual Funds to invest in India in 2020

Now let us move on and share with you my Top 10 Best SIP Mutual Funds to invest in India in 2020.

Best SIP Mutual Funds to invest in India in 2020 -Large Cap

Last year I recommended two Large Cap Index Funds. I am retaining the same funds for this year too.

# UTI Nifty Index Fund-Direct-Growth

# HDFC Index Fund Sensex Plan-Direct-Growth

Best SIP Mutual Funds to invest in India in 2020 -Mid Cap

Last year, I recommended two active Mid Cap Funds. One is HDFC Mid Cap Opp Fund and Franklin India Prima Fund. However, this year, I am recommending Nifty Next 50 Index Funds in the place of Mid Cap Funds.

But Nifty Next 50 Index Funds by definition is a Large Cap Fund, then why I am recommending it as a Mid Cap Fund?

Refer to the below image shared by Mirae Asset AMC.

Nifty Next 50 Vs Nifty Mid Cap

Nifty Next 50 is actually an essence of both large cap and mid cap. Because of this, it acts with the same volatility like mid cap. Hence, I am suggesting Nifty Next 50 as my mid cap fund than particular Mid Cap Active or Index Funds.

My choices are as below:-

# ICICI Pru Nifty Next 50 Index Fund-Direct-Growth

# UTI Nifty Next 50 Index Fund-Direct-Growth

If you are not fond of this idea, then you can choose active funds also. My recommendation from active funds in mid cap category are:-

# HDFC Mid Cap Opp Fund-Direct-Growth

# Franklin India Prima Fund-Direct-Growth

Personally, I am creating a blend of Nifty 50 and Nifty Next 50 with 50:50 or 70:30 to fill the gap of Large Cap and Mid Cap with these two categories of Index Funds.

However, those who already invested in active mid cap funds can continue and slowly move to Nifty Next 50.

Best SIP Mutual Funds to invest in India in 2020 -Multi-Cap

Last year I recommended Parag Parikh Long Term Equity Fund and Quantum Long Term Equity Value Fund. I am retaining Parag Parikh Long Term Equity Fund. I am recommending Axis Multi Cap Fund over the Quantum Long Term Equity Value Fund.

# Parag Parikh Long Term Equity Fund-Direct-Growth

# Axis Multi Cap Fund–Direct-Growth

Best SIP Mutual Funds to invest in India in 2020 -Small Cap

I personally not recommending any Small Cap to my clients. However, if you know how to time the market and play with your money, then you can experiment with these two funds which last year also I recommended.

# DSP Small Cap Fund-Direct-Growth

# Frankin India Smaller Companies Fund-Direct-Growth

Best SIP Mutual Funds to invest in India in 2020 – Equity Oriented Balanced Funds or Aggressive Hybrid Fund

Last year I recommended HDFC Hybrid Equity Fund and Franklin India Equity Hybrid Fund. This year too, I am retaining the same funds due to their consistent long term performance.

# HDFC Hybrid Equity Fund-Direct-Growth

# Franklin India Equity Hybrid Fund-Direct-Growth.

You may have a look at ICICI Pru Equity and Debt Fund also.

Finally, my list of Top 10 Best SIP Mutual Funds to invest in India in 2020 is as below.

Top 10 Best SIP Mutual Funds to invest in India in 2020

Your views may differ from my view. It does not mean I am PERFECT or my strategy itself the BEST. However, I am following this simple strategy for myself and for my clients also.

What is my style of construction Equity Portfolio?

I have listed all the funds above. However, I suggest constructing the portfolio as below within your equity portfolio.

50% Large Cap Index+30% Nifty Next 50+20% Hybrid Funds

50% Large Cap Index+30% Nifty Next 50+20% Multi Cap Funds

50% Large Cap Index+20% Nifty Next 50+30% Hybrid Funds

50% Large Cap Index+20% Nifty Next 50+30% Multi Cap Funds

Disclosure:-I have investments in HDFC Index Fund Sensex Plan and HDFC Hybrid Fund as equity part of my daughter’s educational goal. Also, I have investments in UTI Nifty Index Fund, ICICI Pru Nifty Next 50 Index Fund and HDFC Hybrid Fund as equity part of my retirement goal.

207 Comments

  1. Hi Ji,

    Any suggestion about Mirae Asset ESG Sectoral Fund, Can I invest for next ten year.

    Reply
    • Dear Karthik,
      ESG is one more story AMCs creating to garner our money. Stay away from such stories.

      Reply
  2. Hello Basu, Thank you for the article, Please review my portfolio and suggest if it’s good
    I am 39 years old and this month started investing and plan to invest till 60Y from now.

    UTI Nifty Index Fund – Direct-Growth – 21000
    ICICI Prudential Nifty Next 50 Index Fund – Direct-Growth – 8400
    Parag Parikh Long Term Equity Fund – Direct-Growth – 12600
    Nippon low duration direct growth – 270000 lumpsum ( emergency fund)
    ICICI pru gold saving growth plan – 2000
    I also invested in PPF

    Please share your views and suggest any changes. Thank you

    Reply
    • Dear Nikhil,
      What asset allocation you are following between debt to equity and within the equity?

      Reply
      • I am investing total 42000 Within equity – 50% Nifty index + 20% Nifty next 50 + 30% Multicap . No debt as Nippon low duration is treated as an emergency fund

        PPF – 8000
        Gold – 2000

        Please advise me if I have to rebalance as I have little knowledge of the allocation part.

        Reply
        • Dear Nikhil,
          At first do the asset allocation between debt and equity and within the equity you can follow that strategy which you shared. Regarding emergency, use Bank FDs or Liquid Funds but not low duration funds.

          Reply
          • I am looking for a 30:70 allocation ( debt: equity). because my time horizon is more than 10 years.

            Which debt and the liquid fund is good and about gold investing, is it good to invest. Please advise

            Reply
            • Dear Nikhil,
              I suggest you not to go beyond 60% in equity. For Liquid Funds, you can use Quantum or Parag Parikh Liquid Funds.

              Reply
              • Thanks, Basu. Can I go ahead with PPF as a debt fund and also need to know about the Gold fund

                Reply
                • Dear Nikhil,
                  Yes, you can consider PPF as your debt part. Regarding Gold, I am not fan of it.

                  Reply
                  • Thanks Basu for the valuable information

                    Reply
                  • which is good to consider hybrid or multi cap fund, as I have ppf as debt and quantum liquid fund

                    Reply
                    • Dear Basu,

                      What is your view on investing on foreign funds ie; franklin US feeder

                    • Dear Nikhil,
                      How much difference it will create to your overall portfolio?

  3. Dear Sir,
    Can you please explain your rationale behind choosing HDFC hybrid equity fund as part of the portfolio. It seems to be constantly underperforming since 3 years. There are other funds in same category generating consistently above benchmark indices.

    Reply
    • Dear Harsha,
      Underperforming with respect to what? Benchmark or peers? If you check the risk and rating quadrant of this fund with respect to benchmark, it is still outperforming.

      Reply
    • It is for my friend, it has given good gain in the last 3 years. invested 50000 and now it is 83000. it was a lumpsum amount of investment. Now he has rebalanced his portfolio to 60:40 allocation equity: debt. So just checking with you if still need to start investing in it.

      Reply
      • Dear Nikhil,
        Let your friend do his own investment. Because your risk appetite is entirely different than his.

        Reply
  4. Dear Sir,

    Throughout your blog posts you have stressed upon Index funds eg UTI Nifty Index fund.. but I have seen part performance of many managed funds outperforming these index funds.

    If I choose 2 Largecap funds: one index + one managed.

    managed can be a good fund like Axis bluechip or Mirae asset large cap

    Is it not a good idea to keep the mix?

    Thank You.

    Reply
    • Dear Ashish,
      Check at what cost they are outperforming. The fee difference between active and passive. Also, what if after your investment they start to underperform the index? No fund manager on this EARTH can consistently beat the index. Also, beating the index should be beyond the cost you have to pay. Do you have such confidence on these active funds you mentioned, if YES, then please go ahead?

      Reply
  5. Hello,

    Do you have any recommendations for ELSS funds?

    I have been investing in Axis LTE direct for 6 years now and the average rolling returns have been fairly healthy. With my rudimentary judgement, the fund does continue to provide a good downside protection and continues to be recommended by Morningstar Analysts as well. However, in the recent times, I have seen another fund – Mirae Asset Tax Saver – come up in news articles and conversations with peers and I could use an expert’s advise on if I should stick to my guns on consider this funds. Your suggestions are appreciated.

    Reply
  6. Dear Basu Sir,
    I am your ardent follower since many years and started to invest in MF after reading your blogs.I am in HDFC hybrid direct since 5+ years and accumulated good corpus but recently all accumulated vanishing quickly.my debt part is PPF LIC jivan Anand(holding to it as per your advice as debt)and Franklin ultra short which is suspended now.kindly advice with my two queries
    1) Is it ok to do redemption as accumulated corpus is 12lacs+ but keep continuing my SIP to minimise loss until corona pandemic issue
    2) What is the tax implication if money in Bank savings ac until I decide to invest further or I may not invest at all for time being

    Reply
    • Dear Mahesh,
      1) What is the asset allocation you are following? What is the time horizon of the goal? What is the ratio of equity funds within the equity portfolio?
      2) It is taxable.

      Reply
      • Thanks Basu for the reply. My asset allocation is in the ratio of 60:40 equity to debt and my horizon is 10+ years. My accumulated fund is dwindling and thought of going for redemption but I will continue the SIP.Kindly advise I will go ahead or continue?
        Thanks

        Reply
        • Dear Mahesh,
          Within equity, how you divided among the funds and what are the funds you have?

          Reply
  7. Hello Sir,
    i am having SIP for HDFC top 100 for last 6+ years however i am seeing the fund is not doing that great comparing to its pears(iCICI bluechip or Axis . )
    Could you please help me on my queries ?
    1. should I stop investing on HDFC Top 100 fund or Should i continue investing on this as usual?
    2. I have too investing on ICICI Bluechip on SIP mode with same amount and time, would you advise to stop investing HDFC Top 100 and divert the SIP amount to ICICI Bluechip fund?

    Thanks in advance

    Regards
    Raj

    Reply
    • Dear Raj,
      What prompted you to select that fund? What is the purpose and what is the asset allocation you are following?

      Reply
      • Dear Basavaraj Sir,
        Both the fund is for long term, I would say its for my retirement. I am investing 3K on both the funds since 2014.

        I believe, on someone advise me for HDFC Top 200 which is nowHDFC Top 100 but investment on ICICI Bluechip fund was on my own.

        Thanks
        Raj

        Reply
        • Dear Raj,
          What about the asset allocation between debt and euqity?

          Reply
          • Dear Basavaraj Sir,
            I have only those two MF, rest I invest on PPF (1.5Lakhs).

            Precisely I don’t have debt fund.

            Thanks
            Raj

            Reply
            • Dear Raj,
              Debt means it does not mean debt funds. PPF is also fine. But check what asset allocation you are following.

              Reply
              • Dear Basavaraj Sir,
                I don’t have much knowledge about mutual funds. Since i saw large cap funds are giving better return than bank consistently hence invested in two large cap fund.

                I wanted to invest another 10-12 years in MF, please advise me if I should continue with HDFC TOP 100 in it’s current performance? or shall i take any other fund like Nifty Index funds ?

                thanks
                Raj

                Reply
                • Dear Raj,
                  This is where we do the mistakes many times. Please read the above post properly and start afresh with KNOWING what you have to do than BLINDLY following.

                  Reply
  8. I have sip in Lnt emerging business fund should I continue or move to other fund it’s performance not uptomark?

    Reply
      • sir

        i select this fund in 2018 5 star rating fund but now its not looking good please advise

        Reply
        • I have following portfolio from last 3 year

          1- motilal oswal multicap 35 fund – 1500/-
          2- mirae asset emerging bluechip fund – 2000/-
          3- parag parikh long term equity fund – 1000/-
          4- l&t emerging businesses fund – 1500/-
          is any change needed

          Reply
          • Dear Jai,
            Time horizon fo investment and asset allocation between debt equity?

            Reply
  9. Dear Sir,
    You do not prefer to invest in Small cap funds. However you have suggested “DSP Small Cap fund”. I am seeing the trailing return of SBI small Cap fund is better in 1yr, 3yr, 5yr, 7yr period. Infact in last 3yr, DSP small cap fund has given nagative return.

    I fail to understand, which all parameters you considered to prefer DSP small cap fund
    Regards,
    -Santosh

    Reply
    • Dear Santosh,
      Which other funds gave you positive returns? For me consistency matters.

      Reply
  10. Dear Sir,
    Can you please explain what is Trailing And Rolling Returns of MF, with some simple examples.
    How do I compare returns of two mutual funds over a time period.
    Regards,
    -Santosh

    Reply
    • Dear Santosh,
      Trailing returns are the returns for the past period like 1 Yr, 3 Yrs or 5 Yrs returns. They are point to point returns which will not give you a clear picture of the fund’s volatility. However, rolling returns measures returns on mutual funds at different points of time. For example, take a five-year rolling series starting January 1, 2020, for 15 years. Hence, returns would be calculated from January 1, 2020, to December 31, 2025; January 1, 2025, to December 31, 2030, and so on.

      Reply
      • Dear Sir,
        Which one ( Trailing or Rolling Returns) should be considered for mutual funds by investors, if one invests for 7-10 years. Why most MF companies do not publish rolling return data?
        Regards,
        -Santosh

        Reply
        • Dear Santosh,
          Always consider the ROLLING RETURNS which will give you the clear picture.

          Reply
          • Dear Sir,
            Do we have a publish data somewhere to get the rolling returns of MF ?
            Regards,
            -Santosh

            Reply
  11. Hi I am an NRI planning a retirement fund for an 7-8 year horizon. I plan to start a sip of Rs. 25000 per month. Can you suggest the best allocation for me.

    Thanks

    Reply
    • Dear Chandran,
      If your time horizon is 7-8 years, then I will suggest the allocation of 60:40 between debt and equity.

      Reply
    • Thank you for the response. I already have savings in FD for the debt part. So does that mean i can do the entire SIP in equity or still i have to maintain debt:equity ratio for the SIP. Also can you clarify the difference between open and closed end funds. any advantage of choosing one over other ?

      Reply
      • Dear Chandran,
        Use FDs only for those goals where you need money within 3 years. For more than 3 years of goals, use debt funds, PPF, EPF (as per your requirement). If you are managing the asset allocation properly, then no worries. Yes, a fresh investment must also be maintained with proper debt and equity ratio with respect to goal time horizon.

        Reply
        • Thanks again Sir, Can you please suggest a few debt funds also for investment for 3-5 year horizon for SIP.

          Reply
          • Dear Chandran,
            If time horizon is 3 years, then use Bank FDs or RDs. However, if goal is more than 3-5 years, then use Liquid Funds like Parag Parikh Liquid Fund or Quantum Liquid Fund.

            Reply
  12. My current portfolio is UTI Nifty index, UTI Nifty next 50 and PPFAS Long term fund.
    Slowly redeeming PPFAS fund based on Exit loads and planning to consolidate only 2 index funds.I am restructuring it and move towards only 2 index funds(UTI twins) for portfolio.

    How to decide an optimal allocation between this two funds(Nifty 50 and Nifty Next 50) .

    All my goals are in between 11 years – 23 years from Today. Can you please share your views

    Reply
    • Dear Devan,
      I suggest you to retain PPFAS and structure it like 50% in Large, 30% in Mid and 20% in PPFAS.

      Reply
      • Thanks Basu. currently PPFAS fund value is too small for my portfolio and i want completely migrate to index funds with only 2 funds from UTI . Can i keep 60:40 or 70:30 of N50:NN50 allocation for equity portion. Debt already having PPF/EPF/Liquid funds

        Reply
  13. Hi Basu,

    Very recently I started reading your blogs. These are quite informative and educative too.

    I am a 50 year old person and my retirement is 8 year away. I started investing in Mutual Funds since last year. My monthly SIP is of Rs. 15,000/-.
    Below is the list of funds in which I am investing.

    1) Debt – Long Term – Nippon India Gilt
    2) Debit – Short Term – Nippon India Liquid
    3) Large CAP – UTI Nifty Index
    4) MultiCAP – Kotak Standard
    5) Tax Saver – Mirae Tax Saver
    6) Hybrid – ICICI Prudential Equity and Debt
    7) International – Franklin Feeder Franklin US Opportunities

    Apart from this I am currently investing Rs. 6000/- per month in NPS in the ratio of 50:30:20 (E,G,C).

    I have below questions to ask

    1) Is my fund choice is good?
    2) Do you suggest any changes / reshuffle in it?
    3) Should I reduce my NPS contribution and start investing in any of the above fund?

    Thanking you in advance.

    Warm Regards

    Sanjay A Babre

    Reply
    • Dear Sanjay,
      1) If your goal is 8 years away, then better to stick to the allocation of 40:60 between equity and debt. Stay away from long term gilt. Use liquid funds. One large-cap and if possible one multi-cap is enough for you.

      Reply
  14. Dear Basu,

    I m one of your sincere followers since last 4 years. Started investing since 2016 following your posts. My equity Debt ratio is 60:40.My debt part is covered mostly by ABSL Liquid fund / EPF / Savings account.
    Had 3 SIPs in HDFC Hybrid equity / Mirae asset emerging Bluechip / Kotak standard multicap till March 2020.
    However, wanted to move towards passive investing after reading blogs etc and chosen UTI Twins in 50:30 ratio along with 20 % in HDFC hybrid fund and started SIPs from April 2020.
    I have a corpus of around 9 lakhs invested in my earlier funds (Mirae / kotak) obviously in loss due to the recent crash. Please provide your valuable suggestion on shifting this corpus to index funds? By booking loss and put it in one go as lumpsum as per allocation or Booking loss and investing over a period of time ?

    Thanks in advance.

    Reply
    • Dear Prakash,
      Even though the current holdings are under loss, here you are not withdrawing and spending. Instead, you are restructuring your portfolio. Hence, as per me, it is a notional loss, not a permanent loss. Hence, better to restructure.

      Reply
      • Thanks Basu ji.
        Shall redeem & invest as per my asset allocation in One-go.

        Keep up your good work.

        Reply
  15. Hi Basavaraj,

    I have been investing in the following equity MFs through SIP route since 2015:

    ABSL Frontline Eqt Dir-G

    HDFC Mid-Cap Opp Dir-G

    DSP Small Cap Dir-G

    Debt part is taken care by EPF, PPF, and a liquid fund (Franklin Liquid Reg-G)

    Asset allocation is 60:40 and the investment horizon is >20 years as goals include retirement and child’s marriage.

    I got your idea behind preference towards index funds over active funds.

    Do you suggest me to reshuffle my portfolio by moving to index funds or can I continue with these active funds, as my goals are >20 years from now?

    Thank you in advance!

    Reply
      • Hi Basavaraj,

        Thank you for the suggestion. Just a quick query–In order to reshuffle, I need to withdraw all my investments till date from active funds and put it in index funds as lump sum and start SIP in the same index funds going forward, right?

        In that case, I will need to incur some losses, as most of these are giving me negative returns as of today.

        Reply
  16. Good Afternoon Mr Basavaraj. Yesterday I could not find this and by mistake emailed my issues.
    I am 48 years old. I have investment horizon for 7 to 10 yrs. I have debt/equity ratio of 60:40. In debt sector I have PPF, Liquid fund, PO RD etc.
    In equity I have a target of Rs. 7000 to 8000 monthly SIP.
    Kindly review my following SIPs and suggest any correction needed:

    HDFC Sensex Index fund – Rs.1500/-
    UTi Nifty Next 50 Index fund – Rs. 1000/- (Just started after reading your above post)
    Mirae Asset Tax saver Fund – Rs. 2000/-
    Axis Mid cap Fund- Rs. 1000/-
    SBI Focus Equity Fund – Rs. 1500/- ( Continuing last 4 months)
    Parag Pareikh Long term Equity fund- Rs 1000/- ( Just started after reading your above post)

    Thanks and regards,

    Ravi

    Reply
      • Hello, Good afternoon.

        After your above post, I wanted to switch over to some of the recommended funds, so it looks like more in number.
        I want to discontinue some of those Pl suggest which all I can discontinue .

        Thanks

        Reply
          • Dear Basavarajji,

            I have planned to trim down my portfolio as follows:
            HDFC Index – 2000
            UTI Nifty Next 50 Index -1500
            Mirae Asset Tax saver – 2000
            Parag Pareikh Long Term – 2000,

            Is this better now?
            Thanks & Regards

            Reply
              • Good Morning Mr Basavaraj ,

                Thanks for your reply. I have one ambiguity.
                If I compare Parag Pareikh LTEF and Axis Multicap Fund, the former has a exit load of 2 Yrs and later has 1 yr
                and other thing is minimum SIP amount is 1000 in formar and 500 in later.
                So in this perspective which one is better? PRLTEF or Axis Multicap?

                Reply
                • Dear Ravi,
                  I still suggest PPFLTEF. However, if your amount is Rs.500, then opt Axis.

                  Reply
                  • Hello Basuji,

                    Thanks for your reply. Are you coming out with any post for Debt fund for 2020?

                    Ravi

                    Reply
            • Basuji,

              HDFC midcap i am investing since 2016.As you know performance is not upto the mark. Please give your suggestions for Axis midcap fund.

              Reply
  17. Suggest good Arbitrage fund and Liquid fund at present

    Thank you in advance

    Reply
    • Dear Sachin,
      You can check with ICICI or Kotak Arbitrage and in a liquid you can check Quantum and Parag Parikh.

      Reply
      • In Liquid fund ,what to choose growth regular or direct or dividend etc

        Reply
          • Goal oriented investment

            Reply
  18. Dear Sir,
    Thanks for this article. It gave me another angle to my investment thinking. Investing in Index fund was not in my investment plan but now it is. Thanks.

    Reply
  19. Dear Basu,
    Do you see any drawback in having both multi cap and hybrid along with nifty blend? For my equity portfolio, I was planning for :
    35% N50 +15% NN50 + 30% multicap + 20% Hybrid.

    I am including 20% hybrid (ICICI Hybrid) to provide better downside protection. Do you think including this 20% hybrid wont help much ?

    Reply
    • Dear Vivek,
      My idea is to adopt around 75% to 80% Passive and rest only in the active either through Hybrid or Multi cap.

      Reply
  20. Basu Sir,

    I have been following you for past 18 months. My goals are for child education in next 15 yrs and retirement in next 23 years.
    Based on your articles I have did some homework on investing. Plan on asset allocation E:D 60:40

    Debt (in place):
    PF & VPF
    Need Debt Mutual Fund recommendation. Hope you will publish soon.
    Do I really need NPS?

    Equity Plan (still not started):
    UTI Nifty Index direct
    UTI or ICICI next nifty 50 Index
    Parag Parikh Long Term Equity Fund Direct Plan Growth Option
    HDFC Hybrid Equity fund Direct plan growth option

    few Stocks like Infy, ktkbank, sunpharma, ITC

    Kindly respond with your suggestions.

    Reply
    • Dear Sindhuja,
      For debt, you can use the Liquid Funds like Parag Parikh Liquid Fund or Quantum Liquid Fund. I am not an expert in direct stocks. Hence, I will not comment on that aspect. Regarding NPS, I am against the product. Better you stay away.

      Reply
      • Thanks for the response sir. Will my Equity plan on direct MF works or needs any changes? pls suggest.

        Reply
  21. Hi Basu,
    I am investing FOR MY RETIREMENT (15 yrs down the line),
    Equity to Debt ratio of 70:30
    PPF as my debt portfolio
    Equity SIP portfolio as, UTI index as Large cap (60%), Franklin tax shield (ELSS) (30%) and Franklin india smaller companies (10%)

    Do I need to stop my SIP in Franklin, due to recent Franklin debt issue?

    Thanks in advance.

    Reply
    • Dear Pappu,
      The issue with respect to Franklin was in their debt funds but not in equity funds.

      Reply
  22. Hello Basu,

    I m new here. I hav not much about SIP.
    I want to start with then.
    Could you please suggest ,to where I should start?
    Which is good for long term.

    Thanks
    Abhi

    Reply
  23. Hi Basu ,
    Hope you are doing great!. I have been following your articles from last 3 yrs..I am really in need of an advice n guidance on my mutual fund portfolio..I m investing in below schemes from last 3.5 yrs via SIP mode..n my portfolio has lost 20 percent of investment value in one month because of ongoing crisis..please advise if I should exit or hold for another year..I also invest in PPF n NPS from last 4 yrs..
    hdfc mid cap opportunity fund
    hdfc hybrid equity fund
    icici value discovery fund
    icici bluechip fund
    birla frontline equity fund
    birla equity advantage fund
    mirae asset bluechip fund
    Franklin temp small companies fund

    Reply
    • Dear Naresh,
      As I pointed in the above post, first define your goals and then arrive at asset allocation as per the time horizon of the goal. Then follow the strategy I suggested. Regarding the current investment, I suggest you to reshuffle as I suggested (even though under loss). Because the advantage now is, there is no tax liability and second one is you are not withdrawing permanently but restructuring your portfolio.

      Reply
  24. Sir, I am using a Roboadvisory platform which has a long term goal of 15 years. I was using Rs. 10,000/- in these funds from the last three years:

    (1) Axis Focused 25 Fund
    (2) Mirae Asset Large Cap Fund
    (3) SBI Focused Equity Fund
    (4) Motilal Oswal Nifty 500
    (5) Kotak Savings Fund
    (6) IDFC Low Duration Fund

    After reading your posts on Portfolio Overlap and a couple of other articles, I stopped these SIPs and now changed the funds as below:

    (1) Parag Parikh Long Term Equity Fund (Rs. 3000/-)
    (2) Edelweiss Balanced Advantage Fund (Rs. 3000/-)
    (3) Axis Midcap Fund (Rs. 1000/-)
    (4) Nippon Nifty 50 ETF (Rs. 3000 per month)

    The fourth one is not automated though as it is ETF.

    These funds have less than 10% overlap. Please advise if I can continue this for 15 years to generate enough corpus. I will be increasing SIP every year. This goal is for retirement but the SIP amount is less which I will be increasing.

    Reply
      • Sir, I have not yet added Debt funds in this new portfolio.

        I plan to invest Rs. 12,000 each month in these funds:

        Kotak Savings Fund

        IDFC Low Duration Fund

        Reply
        • Dear Rohit,
          Then first do the asset allocation as I said above. It is of utmost importance before jumping into the rush of searching for the BEST.

          Reply
  25. Hi Basu,

    I have invested in Franklin smaller companies fund via sip during 2017-18. I have stopped my sips after that period. Now I have a 30% loss. What is your recommended exit strategy if I don’t need the money for next 7 to 8 years? Should i invest small amounts via sip now?

    Reply
      • Dear Basu,

        Thanks for your reply. So should I book my losses now and invest them in index fund or should i wait without adding more and exit from them after i recovered my loss.

        Reply
  26. i like your article and suggestion of funds

    Reply
  27. Hi Basu,

    Thanks to you for the clarity on last question.

    Are you going to publish Top Debt fund 2020 and Top Liquid funds 2020?

    Reply
  28. My portfolio is…
    My. Age..39…i have long term objective…

    Uti nifty 50 index ……15%
    Icici blue foc eq fund…15%
    Axis bluechip fund…10%
    Axis midcap……..15%
    Uti nifty next 50…..15%
    Franklin feeder US opp fund….15%
    PPF………15%
    TOATAL ……100%

    Reply
    • Please guide regarding my portfolio

      Reply
    • Dear Sandip,
      Why you need active and passive funds at first? Check the above post properly. Readjust your asset allocation accordingly.

      Reply
  29. Hi Basu,

    Since you have been publish best mutual fund list every year. I would like to know if i need to invest in different funds every year and if so then what about the money already invested in older funds. Shall i redeem them or not?

    Reply
    • Dear Dilip,
      Check my last year’s post to this post. Also, read the post properly. I have already answered your question.

      Reply
  30. Hi Basu,

    Is this year also are you posting best elss MF??

    Reply
  31. Dear Mr Tonagatti,

    With the ongoing COVID situation and possibly looming recession, are the suggested funds still good options, especially if one thinks of starting afresh? Uderstandably it makes sense to stick to ongoing investments and SIPs, but building emergency corpus and having reasonable liquidity probably takes precedence now more than ever. there is all sorts of information floating around to gear up for the times ahead, invest lumpsum over SIP, stop investments, emergency funds etc etc. I am a follower of your posts so thought of checking if you plan to share some analyses or tips of your own to prep for the kind of uncertainity we are in?

    Really appreciate all the information you provide.

    Thanks and Stay Safe!

    Reply
    • Dear Tanu,
      The first step of financial planning is setting aside emergency fund of at least 6-24 months of your expenses and buying proper life, health and accidental insurance coverages. If one is not having these things, then the first step is to concentrate on these and then think about investment. Today COVID and tomorrow some other virus. Be prepared, be healthy and be safe.

      Reply
  32. Hi Basu sir,

    Coming to portfolio construction how do I construct it if i am using ELSS for tax saving (and wealth creation). I have sip in Axis long term equity and Absl tax relief 96 funds. I also have active 1.5k sip in franklin smaller companies fund ( which i would like to continue)

    Reply
    • Dear Vivek,
      As per me, you just consider them as multi cap kind of equity fund.

      Reply
  33. Dear Basu, I have started investing with AA as 60:40 for Equity:Debt for my goals. After this recent correct for last 2 weeks, now the AA becomes 54:46. This month i am supposed to review my investment plan as part of annual review.

    My query should i do rebalancing from Debt to Equity to bring back 60:40. But again the market correct day by day, Is it good to do re-balancing now.

    Reply
    • Dear Kalai,
      If it is with respect to annual review, then yes rebalancing is required. Stick to asset allocation as per the time horizon of the goal and risk appetite.

      Reply
      • Basu,
        I have PPF ,EPf as debt products and how do i re-balance in this case. Now my Asset Allocation down to 54% from 60% of equity for all goals.

        Another query is, if we reduce debt exposure for rebalancing, there is a chance of short fall in debt values. How to manage it.

        Reply
        • Dear Dev,
          This is the issue if your debt part is in products like PPF or EPF. You have to allocate around 25% of your debt part either in Arbitrage Fund or Liquid Fund. You have no other choice to reduce your debt investment for future investment and proportionally increase your equity to bring back the level you defined yourself.
          It will not shortfall but you are bringing in the allocation at right level.

          Reply
  34. Hello Basu, Thank you for the article, Please review my portfolio and suggest if its good
    I am 40 Years old and investing for my retirement, Plan to invest till 55Y from now.

    UTI Nifty Index Fund – Direct – Growth – 10K
    ICICI Prudential Nifty Next 50 Index Fund – Direct – Growth – 4K
    Mirae Asset Hybrid Equity Fund – Direct – Growth – 3K
    Parag Parikh Long Term Equity Fund – Direct – Growth – 3K

    Please share your views and suggest any changes. Thank you

    Reply
    • Dear Santosh,
      What asset allocation you are following with respect to debt and equity?

      Reply
      • Hello Basu, I am investing in PPF and a debt fund around 10k with which it will be around 70:30 allocation. Thanks

        Reply
        • Dear Santosh,
          Stay away from Mirae and make sure the asset allocation of 40:60 between debt and equity.

          Reply
          • Thank you for your inputs Basu

            Reply
          • Dear Basu, curious why you said to stay away from Mirae. Were you referring to that particular fund, or the fund house itself? Their large &mid cap fund is doing well.

            Reply
            • Dear Melwyn,
              I am sticking to Index Funds but not active funds. Their Index Funds do not fall under my selection.

              Reply
          • Dear Basu,

            Just wanted to know why you suggested to avoid Mirae ? I mean some problem with fund/fund house?

            Regards,
            Anubhav

            Reply
            • Dear Anubhav,
              I am repeating again, there is no issue with a fund or fund houses. But I want to eat as per the capacity of my stomach. Rest everything is useless and noise to me. Do you need all the BEST funds of this earth to reach your goals?

              Reply
  35. Dear Basu,

    What is the research or observation you have done in choosing the fund, I know you have a set of criteria like low expense ration, tracking error etc.
    But if there are many funds which come under the same criteria how do you pick the right fund?
    Do you go by your gut feeling or look at the stock holding of the fund.
    Just wanted to know your thought process.

    Reply
    • Dear Ashok,
      Here, as I have adopted to Index Funds, I am looking for those criteria to choose the funds. However, if you are pointing towards active funds, then the criteria differs.

      Reply
  36. No Fund is spared ., huge losses .. Will this recover !!! Carona seems to be infecting stock markets too

    Reply
    • Dear Nandu,
      If you can’t digest such volatility and not done the proper risk management, then better to stay away from equity.

      Reply
  37. hi Basu, thanks for listing out equity MFs for 2020 for which many of us were waiting. do you have any plans to publishing similar blog for Debt funds. Not all type of Debt funds but few top categories?

    Reply
      • Yes sir, Eagerly waiting!! Don’t know why ABSL floating rate fund dropped 0.25% yesterday. I am a conservative investor when it comes to debt funds. Have investments in Franklin India savings fund also, no issues with that.

        Reply
  38. Dear Sir,

    Please post recommendations for ELSS funds.

    Reply
  39. Hi Basu,

    Good day !!!

    I have stopped contributing Rs. 6,000 in each of the following 5 mutual funds through SIP from October 2019 after maintaining the SIPs for five years.

    1. Aditya Birla Sun Life Frontline Equity Fund – Growth – IRR% 5.67

    2. Franklin India Smaller Companies Fund – Growth – IRR% 2.32

    3. HDFC Infrastructure Fund – Growth Plan – IRR% -7.09 (negative)

    4. HDFC Mid Cap Opportunities Fund – Growth – IRR% 6.65

    5. ICICI Prudential Value Discovery Fund Growth – IRR% 1.42%

    Still the MFs are invested with a hope to get good ROI after 5 years from now. Shall I continue with these funds or should I switch from these to some other more promising MFs? Please advise with your recommended MFs for switching. I am at the age of 55 years and my time horizon for investing is another 5 years from now.

    Regards,

    Bikash Ghosh

    Reply
    • Dear Bikash,
      If your time horizon is around 5 years, then stay away from EQUITY.

      Reply
      • Hi Basu,

        My time horizon is 10 years, the SIPs are already continued for last 5 years and the remaining/next 5 years will be continued but without any fresh investment. So, please advise whether I should keep all these 5 funds or switch to more prospective funds.

        Regards,
        Bikash Ghosh

        Reply
        • Dear Bikash,
          As I pointed, if you need money in next 5 years, then better move to debt from equity.

          Reply
  40. nice post thanks for sharing.

    Reply
  41. Why should in invest in an index fund instead of in ETF? Apart from ease of investment(SIPs), STT, brokerage charges is there any fundamental difference between these two ? and if i have an account with discount broker like zerodha would it be cheap to invest in SBI nifty ETF than in UTI index fund ?

    Reply
    • Dear Nepaltour,
      I already commented on this issue. If you are OK with liquidity issue, then please go ahead.

      Reply
  42. How to reduce equity exposure ,any thumb rule to follow. kindly suggest.

    Reply
    • Dear Warehousewale,
      There is no such thumb rule. However, as per your goal time horizon (as explained above), you can reduce it.

      Reply
  43. Hi Basu,

    the list and suggestions are crisp and clear. you might have switched from active fund to index for your portfolio. what is your suggestion to such switch is it in one go redeem all amount of say large cap fund and invest in say nifty or it should be in period of some months.

    how do you think about ICICI balanced advantage as alternate of hybrid funds suggested by you for a goal which are 8- 10 years away or do you think hybrid funds are still better for this time frame as well.

    Regards,
    Prakash

    Reply
    • Dear Prakash,
      Good question. You can move the units which completed a year and also check your tax liability before you move. The best thing is that part of it you can move in this FY where you get tax free gain of Rs.1 lakh and remaining in next FY. But yes, in one go.
      You can use ICICI Balanced Advantage. But currently, the fund is holding around 21% in cash, which I think too much.

      Reply
      • Thanks for sharing your thoughts.

        Reply
  44. Basu,

    I have invested 5 lakh icici prudential blue chip since 2018 ; ( this was one of your recommended fund ) Should i switch or stay invested ?

    Reply
    • Dear Nandu,
      I recommended changing to Index Funds from 2019 itself from this particular fund slowly (subject to taxation).

      Reply
      • Thanks Basu, I was looking at below fund to switch( from ICICI prudential blue chip ) which is performing good and give some exposure to US market
        ICICI PRUDENTIAL US BLUECHIP EQUITY FUND – GROWTH
        is this a good idea ?

        Reply
        • Dear Nandu,
          If you are looking for international exposure, then I suggest Parag Parikh Long Term Equity Fund.

          Reply
  45. Dear Basu, I have recently started an SIP in SBI Hybrid Equity Fund. I find it is not one of your recommended funds. So would it be better if I cancel the SIP ? Regards, Srinivas.

    Reply
    • Dear Srinivas,
      May I know the reason behind choosing this fund?

      Reply
  46. Thanks for the recommendations on index funds. I have following queries regarding index funds.

    1. Why should in invest in an index fund instead of in ETF? Apart from ease of investment(SIPs), STT, brokerage charges is there any fundamental difference between these two ? and if i have an account with discount broker like zerodha would it be cheap to invest in SBI nifty ETF than in UTI index fund ?

    2. I see a difference of 40 to 50 bps between uti index fund’s 1 year return and nifty 50 TRI. Similar differences in hdfc and sensex TRI. The difference is more for 5 year and higher. I don’t see such difference in ETF though. Can you share your thoughts on this difference.

    3. Are index funds and ETFs are taxed similar to equity funds ?

    Reply
    • Dear Ajay,
      For me, liquidity is a concern with respect to ETF. If at any point of time, I am unable to BUY or SELL at the NAV, then it is frustrating for me. Remember NAV and PRICE of ETF are two different things. Tracking error applies to both Index and ETF but with different ratios. Check the tracking error that will give you a clear picture. Regarding taxation, yes both are taxed same.

      Reply
      • Thanks for the clarification.

        How should i check tracking error ? is there any parameter that shows me tracking error and can compare across funds ?

        Reply
        • Dear Ajay,
          All websites like moneycontrol, morningstar or valueresearch will show this. If you are unable to find, then you can cross check the same with respective AMC websites also.

          Reply
  47. Sir my goal is retirement and child education
    My portfolio is
    1. Axis Bluechip SIP
    1. Parag parikh long term equity fund SIP
    3. HDFC mid cap SIP
    4. HDFC small cap SIP
    5. ABSL Retirement fund SIP
    6. Kotak multi cap fund SIP
    Sir is there any change needed in my portfolio or not please suggest

    Reply
    • Dear Sagheer,
      What are the time horizons of the goals? What asset allocation you are following between debt and equity? How you arrived at these funds?

      Reply
  48. Hi Basu,

    Thanks for the post. It gives lots of insights in selecting the funds. I have invested in mutual funds through an online platform who is managing all my portfolios. Now i am not able to get to the point how much the cost i am spending by investing it through this platform? Is it good to manage directly with the mutual fund houses or the current platform is safe to continue? Kindly guide me in getting the clarity.

    Thanks,
    Regards,
    Saravanan

    Reply
    • Dear Saravanan,
      What do you mean they are managing? Which online platform you are using?

      Reply
      • Dear Basu,

        Its fundsindia through which i invest in mutual funds.

        Reply
        • Dear Saravanan,
          Fundsindia acts like a middleman. If you are capable of handling your portfolio, then you can go for DIRECT.

          Reply
          • Dear Basu,

            Thank you for the quick response. Appreciate it.

            Also i would like to know the costing with which they charge me for using the platform. I am not able to figure out it exactly.

            Reply
            • Thank you very much Basu. I will start handling directly.

              Thank you once again.

              Regards,
              Saravanan

              Reply
              • Hi Basu sir,

                I am curious if investing regularly every month in Berkshire Hathaway class B shares with proper asset allocation is a good strategy against investing in nifty index funds. Please share your thoughts on this.

                Reply
                • Dear Rajnesh,
                  I am not an expert to analyze the Berkshire Hathway Class B product.

                  Reply
  49. Basu ,

    Is International funds required to build diversified portfolio across geography. If so how much % of exposure is required in our equity portfolio.

    How to select International funds .

    Reply
    • Dear Dev,
      Many such international funds currently offering are country-specific or sector-specific, which again creates concentrated risk. If you have any such fund which diversifies across all geographies and sectors, then you can experiment with 10% to 15% of your equity portfolio.

      Reply
      • Thanks Basu,

        Why there is no ETF recommended in your MF list. Is cost wise ETFs are much cheaper than Index funds. Shall we look ETF also for our portfolio construction. Share your views.

        Reply
        • Dear Dev,
          I agree with your views with respect to ETF. However, currently in India ETF space not developed to that extent that to consider it. Also, sometimes Liquidity is an issue.

          Reply
          • I have listed goals(Child education, Marriage and Retirement).

            I am unable to find any goal planning calculators in your website to find my goals monthly required amount and target corpus. If you have already shared any post regarding goal calculation, Kindly point me the links.

            Thanks in advance.

            Reply
              • Thanks Basu, I have already seen that post. Actually i have used Excel to find below :
                future value goals = FV function
                Monthly amount to invest each month. = PMT function of excel. But the problem is this maintains constant rate for the entire goal period. ie Fixed AA for the full tenure of the goal. Is that ok to start with or Do you suggest any other method to find the monthly required for given AA.

                Reply
                • Dear Dev,
                  You mean to say you wish increasing investment at around 5% to 10% on yearly basis than the flat investment throughout the goal period right?

                  Reply
                  • No basu, I mean PMT takes constant expected return from both asset class (60:40) for the entire goal tenure.(15 years). If we want to calculate for variable AA, then PMT will not be useful. To summarize, what i am trying to know , Is all these estimates for goal planning are ball-park and we can not exact arrive correct target goal amount

                    Reply
                    • Dear Dev,
                      There are certain calculators also. Where you can do the asset allocation, adjust return expectations from each asset class and also reduce your equity exposure as you reach towards the goal. A simple compounding formula will not work in that case.

  50. Basu, Thanks for the post.

    1. I have query on how to maintain Asset allocation for the long term goal. For instance, Son education goal 14 years from today. Should i maintain same 60:40(Equity:Debt) till the 11 th year of the goal and finally move all the corpus to Debt in the 11 th year.
    Or
    How to reduce equity exposure ,any thumb rule to follow. kindly suggest.

    2. Why we need multicap / hybrid funds along with Nifty blend. Will it add portfolio overlap to our portfolio. Still not clear about Downside protection, When all equity funds(Active/Passive) are investing close 80-90% of the corpus to market, how do we know Active funds are downside protected.

    Reply
    • Dear Kalai,
      1) You have to start with 60:40 but as the goal is nearing (say less than 5 years), then you have to come out from equity. In your case, you have to reduce to ZERO equity from 9th year to 14th year. Regarding the thumb rules, I already explained above the asset allocation you have to follow.
      2) NIfty 50 and Nifty Next 50 is as per definition called large cap. By including hybrid fund (where I have exposure of 35% in debt) and multi cap funds, I am indirectly exposing towards real mid and small cap in small way. Hence, these two categories I use to cushion the downside protection of Index Funds (even though I have downside protection at portfolio level using debt portfolio).

      Reply
      • Thanks Basu,

        I have one basic doubt on Active Vs passive funds. Is active funds fetch more returns than Index funds, so that we can reach the goal faster. I believe this may be the reason for most advisors are recommending Active funds than Index. Please correct me if i am wrong.

        If i build Index only portfolio with Nifty blend , Am i short of reaching my target corpus. 🙂

        Reply
        • Dear Kalai,
          Check the commission structure of active and passive funds. You understand why they not recommend you. The expense ratio of index funds is around 0.1% to 0.2%. Whereas active funds are costlier around 1%. Obviously their income will also reduce if they recommend index fund.

          Reply
          • Basu ,

            ” Paying a higher fee for active funds is justified only if the fund manager generates more than ONE PERCENT compare to Index Funds CONSISTENTLY. ” .

            As a retail investor, how do i find out which active funds will beat Index funds consistently with more than 1% in overall return. Considering past return is also not good measure to select an active funds, because tomorrow we are not sure how the active fund will perform.

            Reply
              • Basu, I want to club Children education goals, How to combine both UG and PG goals together. I have 2 kids, so totally i need only 2 goals for both kids education.

                Reply
                • Dear Kalai,
                  If your goals are long term (like 10 years or so), you can combine all such goals and go for a unified portfolio.

                  Reply
                  • okay, I have listed each goals and found the how much to invest and sum up all the monthly reqd,amount to invest in a unified portfolio with AA as 60:40 (Eq:Debt). Now my query is, Should i maintain same AA for all the goals. Because the goal tenure differs to each goal.

                    Reply
                    • Dear Kalai,
                      If your goals are more than 10 years, then is it not wise to consider them as long term goals and start a unified portfolio. Once they are nearer, then you can take a call proportionally based on the nearing of each goal.

                    • Basu.

                      ” If your goals are more than 10 years, then is it not wise to consider them as long term goals and start a unified portfolio. ”
                      Do yo u mean its wise or not wise to consider unified portfolio for goals which are more than 10 years, Its exactly all my goals more than 10 + years from now.

                    • Dear Kalai,
                      Typo…remove NOT. If your goals are more than 10 years, then do the asset allocation as suggested above and follow the unified approach.

    • Yes Basu, You got the point, I am exactly looking that type of calculators or idea to build the one on my own using excel.

      Reply
        • Hi basu,
          I have been investing in Mutual funds via sip mode from past 3 years. I have defined my goals, and done with asset allocation as below.
          50% Debt Instruments
          50% Equity,
          Out of this Equity 1/4th Into (SBI Blue chip Large cap) which was not performing good so I stop future investments into this and started UTI NIFTY 50 index fund.
          1/4th into UTI NIFTY NEXT 50
          1/4 into HDFC MidCap opportunity fund
          1/4th into Frankline India Smaller company fund.
          Now my doubt is my small cap find is underperforming compared to other small cap in category and you are also not suggesting investing in MidCap or SmallCap in future. So Should I stop my future sips in Mid&Small cap ? Should I switch to any other Cap such MultiCap etc. Please Suggest.

          Reply
          • Dear Sravan,
            Better to stick to Nifty 50, Nifty Next 50 and one multi cap. Stay away from small cap or active mid cap fund.

            Reply
            • Thanks basu

              Reply
      • Thanks Basu,
        Let me to know how this approach works. I have listed all the goals and following Unified portfolio.
        I will consider the lengthiest goal tenure as whole goal tenure for the investment period. For instance, Retirement will be the last goal in the list.Will start with equity:debt AA as 60:40 and reduce equity exposure 3% every year. Whenever the nearest goals(child education) comes in, will withdraw the amount to fixed income product(Liquid fund,FD) as you suggested.

        By following this approach, by default re-balancing takes care. Please share your views, any problems you find from this approach.

        Reply

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