Diversify mutual fund investments for better risk management
A 35-year-old investor is looking for guidance on mutual fund investments. Currently, they are heavily invested in small-cap funds through several systematic investment plans (SIPs) while also having some lump sum investments from ten years ago. Experts suggest diversifying investments not only across different asset classes but also within the same asset class. For investing in equity, it’s important to distribute funds among large-cap, mid-cap, and small-cap categories. The recommended allocation is 40% in large-cap, 30% in mid-cap, and 30% in small-cap. The investor has concentrated too much on small-cap schemes, holding four out of five SIPs in this category. Financial advisors recommend that investors avoid putting money into multiple schemes from the same category. Investing across different mutual fund houses and sectors is encouraged for better diversification. Reviewing and rebalancing investments regularly is important. The investor has not reassessed their previous lump sum investments, which is a necessary step. Experts advise checking the performance of all schemes annually and making changes if any underperform. For better diversification, it’s suggested to use the UTI Nifty Fifty index fund for large-cap investments and the HDFC Mid Cap Opportunity Fund for mid-cap. For small-cap, merging all SIPs into the Nippon Small Cap Fund is recommended. Overall, the investor should aim for a balanced approach to their portfolio, up to 65% equity based on their age.