Can a 10% annual SIP step-up help turn Rs 26,000 monthly investment into Rs 1 crore?

Building long-term wealth through mutual funds requires more than just investing regularly. A well-diversified portfolio, proper asset allocation, and periodic portfolio reviews are equally important to ensure investments remain aligned with financial goals. Investors often end up accumulating multiple schemes across categories over time, leading to overlap, concentration risks, and inefficient portfolio construction.

One such investor currently invests Rs 26,000 every month across multiple mutual fund schemes, including large-cap, mid-cap, hybrid, thematic, digital, multi-asset, and tax-saving funds reached out to ETMutualFunds and wanted to know whether any changes were needed to maximise long-term gains.

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The investor holds Quant Tax Plan, Quant Multi Asset Fund, Quant Mid Cap Fund, Nippon India Equity Hybrid (regular plan SIP stopped and invested in direct plan as well), Mirae Asset Large Cap Fund, Mirae Asset Large and Mid Cap Fund.

She also holds Mirae Asset Great Consumer Fund, ICICI Prudential India Opportunities Fund, HDFC Hybrid Equity Fund, DSP Equity Opportunities Fund, Aditya Birla Sun Life Digital India Fund, and Motilal Oswal Midcap Fund.

Arjun Guha Thakurta, Executive Director, Anand Rathi Wealth Limited analysed the portfolio and said that while the investor is already investing a meaningful amount through SIPs, increasing the SIP contribution by 10% every year could significantly enhance wealth creation over the long term.

According to the expert's calculations, assuming a 13% annual return over a 10-year period, the investor's current investments could potentially grow to around Rs 71 lakh. However, by introducing a 10% annual SIP step-up while maintaining the same return assumption, the corpus could increase to nearly Rs 1 crore.

Thakurta also said that the investor's portfolio is not optimally allocated across market capitalisations. Based on the review, the ideal market-cap allocation should be around 55% large-cap, 23% mid-cap, and 22% small-cap exposure.

However, the investor is currently over-allocated to large-cap funds by around 7% and mid-cap funds by approximately 8%, while remaining under-allocated to small-cap funds by nearly 14%.

The expert further said that the investor should avoid investing in multi-asset and hybrid funds, arguing that such schemes reduce an investor's control over asset allocation decisions. Similarly, thematic and sectoral funds are to be avoided due to their cyclical nature and tendency to experience prolonged periods of underperformance.

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Taxation: The expert mentioned the role of tax-saving funds or ELSS funds. Thankurta said that if the investor is following the old tax regime, she may continue investing in ELSS schemes for tax benefits. However, if she is under the new tax regime then may not need to invest in ELSS funds since the tax-saving advantage is no longer available.

Funds to hold

Looking at the existing portfolio investments, the expert advised the investor to continue with a select set of diversified equity funds that have demonstrated relatively strong long-term performance.

These include Quant ELSS Tax Saver Fund (subject to tax regime), Quant Mid Cap Fund, Motilal Oswal Midcap Fund, Mirae Asset Large Cap Fund, and DSP Large & Mid Cap Fund. These schemes have delivered upto 18% CAGR in the last three years whereas have delivered over 20% CAGR in the last five years.

Funds to exit and new funds to add

The expert said that from the current investments, the investor can make exit from nearly seven funds to reduce overlap and eliminate exposure to thematic and hybrid categories. These include Aditya Birla Sun Life Digital India Fund, HDFC Hybrid Equity Fund, ICICI Prudential India Opportunities Fund, Mirae Asset Great Consumer Fund, Mirae Asset Large & Midcap Fund, Nippon India Aggressive Hybrid Fund, and Quant Multi Asset Allocation Fund.

In the last three years, these funds have delivered upto 24% CAGR and in the last five years, the fund delivered a CAGR upto 20%.

According to the expert, sectoral and thematic funds can be highly cyclical and may not always deliver consistent long-term returns, while hybrid and multi-asset funds can complicate portfolio allocation decisions.

To improve diversification and address the portfolio's underweight exposure to small-cap stocks, the expert recommended allocating fresh investments to HDFC Small Cap Fund and Invesco India Smallcap Fund.

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The expert also suggested considering Kotak Multicap Fund for broader market-cap exposure and ICICI Prudential Dividend Yield Equity Fund as a relatively stable equity allocation.

The recommendations indicate that simplifying the portfolio, reducing overlap, increasing exposure to small-cap funds, and adopting a disciplined 10% annual SIP step-up strategy could help the investor improve the chances of building a larger long-term corpus while maintaining a more balanced asset allocation.

(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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