Investing over Rs 43,000 monthly through SIPs? Here’s what an expert recommends for 20-year investment journey

Building a long-term mutual fund portfolio often raises questions about diversification, fund overlap, active versus passive investing, and the role of debt funds for short-term goals. While investors frequently look for new funds to add or existing schemes to remove, experts believe that unnecessary portfolio churn can sometimes do more harm than good.

One such query came from Prachi, a viewer of The Money Show on ET Now, who invests Rs 43,500 every month through SIPs with a 10% annual step-up and has accumulated a portfolio worth around Rs 12.83 lakh.

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Her investment horizon for equity investments is 20 years, while she is also looking for a suitable debt fund for a lump-sum investment with a time horizon of one to three years.

Her current portfolio includes SIPs in Parag Parikh Flexi Cap Fund, Motilal Oswal Large & Midcap Fund, ICICI Prudential Nifty Next 50 Index Fund, Kotak Multicap Fund, Bandhan Smallcap Fund, Quant Mid Cap Fund, SBI Contra Fund, and HDFC Mid-Cap Opportunities Fund. She has also invested lump sums in HDFC Balanced Advantage Fund and ICICI Prudential Multi Asset Fund.

Harshvardhan Roongta, CEO, CFP, Roongta Securities, reviewed her mutual fund portfolio and suggested a few changes to improve balance while maintaining the overall investment strategy.

According to Roongta, Prachi's portfolio is broadly well diversified and does not require major changes. He advised against making frequent portfolio changes simply for the sake of rebalancing and said that most of the schemes can be retained for the long term.

"For Prachi, I would say the portfolio that she has created with eight schemes, by and large, is fine and she may continue. I do not want to make too many changes just for the sake of it," he said.

While he was comfortable with most of the portfolio, Roongta pointed out that Prachi currently has exposure to two actively managed midcap funds – Quant Mid Cap Fund and HDFC Mid-Cap Opportunities Fund.

To create a better balance between active and passive investing, he suggested replacing one of the active mid-cap schemes with a passive alternative. He recommended discontinuing investments in Quant Mid Cap Fund and redirecting those SIPs into a midcap index fund such as the Nippon India Nifty Midcap 150 Index Fund.

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According to Roongta, this approach would allow the investor to benefit from both active stock selection and passive market participation within the mid-cap category.

"What I recommend is that she stops her investment into the Quant Midcap Fund and instead adds a midcap index fund. This way she will have the best of both worlds in the midcap category, one active strategy and one passive strategy," he said.

Roongta was also comfortable with Prachi's existing lump-sum investments. Her allocations to HDFC Balanced Advantage Fund and ICICI Prudential Multi Asset Fund already provide diversification across asset classes and market conditions.

He said there was no need to make changes to these investments. "The lump sums that she has put into both her schemes are fine. There is one balanced advantage fund and a multi-asset fund. I do not think you can possibly go wrong with that," he said.

Prachi also wanted advice on investing a fresh lump sum for a period of one to three years. Given the relatively short investment horizon, Roongta advised against taking equity exposure with this money and instead recommended a debt fund.

He suggested investing in a short-duration debt fund, specifically mentioning Bandhan Short Term Fund as a suitable option. According to him, a short-term debt fund may be better aligned with capital preservation and stability requirements for a one-to-three-year goal.

"For fresh investments meant for one to three years, my suggestion would be to go with a short-term debt fund. A Bandhan Short Term Fund would be ideal for this situation," he said.

For long-term investors, portfolio reviews do not always require major overhauls. In Prachi's case, the expert believes the existing portfolio remains largely on track for her 20-year goals.

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The key recommendation was to introduce passive exposure in the midcap segment by replacing one active midcap fund with an index fund, while using a short-term debt fund for money earmarked for near-term goals.