Are multiple large & midcap funds hurting your portfolio? Expert suggests tweaks to reach Rs 1.5 crore goal in 15 years

Building a long-term wealth corpus through mutual funds requires the right mix of schemes, disciplined investing, and proper asset allocation. Many investors, especially those in their early careers, often end up selecting multiple funds from similar categories, which can lead to overlap and reduce the effectiveness of diversification. The key lies not just in choosing good funds, but in structuring a balanced portfolio aligned with financial goals.

A similar situation was faced by Vikas Gusain, a 28-year-old investor and a viewer of The Money Show on ET Now. He has been investing since 2023 and has built a portfolio worth around Rs 2.64 lakh across five mutual fund schemes.

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His investments include three large and midcap funds, Kotak Large and Midcap Fund, Nippon India Vision Large and Midcap Fund, and SBI Large and Midcap Fund, along with an Edelweiss Gold and Silver ETF Fund and a Motilal Oswal Asset Allocation Passive Fund of Fund (Aggressive). His goal is to build a corpus of Rs 1.5 crore over the next 15 years.

According to market expert Pankaj Mathpal, while the funds selected are fundamentally sound, the portfolio lacks proper allocation. Having three funds from the same category, large and midcap, leads to duplication rather than diversification which means the portfolio may not fully benefit from different market segments.

“So, there are five schemes and out of these five schemes, one is hybrid, one is a commodity fund like gold and silver fund, and three equity schemes are there and all three are large and midcap funds. So, all the schemes are good, but the allocation is not appropriate,” Mathpal said.

Gusain has a target corpus of Rs 1.5 crore in 15 years. Mathpal said that based on a 12% annual return assumption, while taking the portfolio value that he has of Rs 2.64 lakh, Vikas would need to invest around Rs 17,000 per month through SIPs and increase the contribution by 10% every year to reach his Rs 1.5 crore target in 15 years.

Even if he is currently investing a lower amount, gradually stepping up investments can help him stay on track.

Further Mathpal said that he can do Rs 17,000 monthly SIP now or otherwise start with whatever he can and then increase it later on and also suggested reducing duplication and improving diversification.

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Instead of holding three large and midcap funds, Vikas can restructure his portfolio by switching one fund to a flexicap strategy and another to a multicap approach. For instance, shifting from Kotak Large and Midcap Fund to Kotak Flexicap Fund and from Nippon India Large and Midcap Fund to Nippon India Multicap Fund can create a more balanced mix. Retaining one large and midcap fund alongside flexicap and multicap funds provides exposure across different market segments more effectively.

“My suggestion is that from Kotak Large and Midcap Fund you can switch to Kotak Flexicap Fund and from Nippon India Large and Midcap Fund you can switch to Nippon India Multicap Fund and SBI Large and Midcap Fund is already there. So, there will be one large and midcap, one flexicap, and multicap fund in your portfolio that will be a better combination,” the expert said.

The other two investments in his portfolio, Edelweiss Gold and Silver ETF Funds and the Motilal Oswal Asset Allocation Passive Fund, add diversification from an asset class perspective. The asset allocation fund, in particular, invests across equity, debt, gold, and silver through passive instruments, making it a suitable option for investors seeking a diversified approach within a single scheme.

Commenting on what kind of fund - Motilal Oswal Asset Allocation Passive Fund of Fund is and what kind of an exposure this fund gives, Mathpal explains that such passive fund-of-funds primarily invest in index-based instruments across multiple asset classes. This means investors get exposure to a diversified basket without actively picking individual funds.

“When it is a passive, the first thing you have to understand is that you invest in index funds. Now because it is a fund of funds so multiple asset classes, equity, debt, gold, silver can be there in a portfolio. Right now so if you see there is equity, gold, debt everything is in his portfolio,” the expert further said.

For beginners or those looking for simplicity, such funds can serve as a core holding in the portfolio. So, Motilal Oswal Asset Allocation Passive Fund is a good choice.

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The expert also explained that one has to understand there are some passive funds in this category as well as there are some active funds as well. So, when there is a passive fund, it means underlying schemes, underlying funds are index funds. So, Motilal Oswal Asset Allocation funds invest in multiple passive funds through this fund.

Overall, the strategy for investors like Vikas should be to simplify the portfolio, avoid duplication, and maintain a disciplined SIP approach. With consistent investing, periodic step-ups, and a well-diversified allocation, achieving long-term goals like a Rs 1.5 crore corpus becomes more realistic.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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