Rs 97,500 monthly SIP & over Rs 2 crore corpus at 62? Expert suggests portfolio rejig for NRI investor to reach Rs 3 crore goal

Mutual fund investors nearing retirement need to balance wealth creation with capital protection as their financial goals draw closer. With a shorter investment horizon, portfolio allocation, risk levels and regular income requirements become increasingly important.

A 62-year-old NRI, who currently invests Rs 97,500 every month across mutual funds reached out to ETMutualFunds to seek advice on his portfolio and is looking to build a Rs 3 crore mutual fund corpus in the next four years

The investor, who earns AED 28,600 per month and plans to continue working for at least another four years, currently has a mutual fund portfolio worth Rs 2.20 crore. Apart from mutual funds, the investor has substantial fixed-income assets and three properties in India worth at least Rs 3 crore.


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The investor's debt-side investments include Rs 40 lakh in SCSS, Rs 40 lakh in EPF and around Rs 47.8 lakh in FCNR(B) deposits. The NPS corpus has not been disclosed. His liabilities include Rs 1.27 lakh in home loan which has repayment date till September 2027 and Rs 30 lakh outstanding sons education loan principal at Rs 47,000 per month EMI.

The expert, Tanvi Kanchan, Associate Director, Anand Rathi Share and Stock Brokers Limited analysed the portfolio and told ETMutualFunds that the investor should focus on asset allocation and portfolio consolidation rather than simply increasing equity exposure to meet the four-year target.

The investor's total financial assets, excluding NPS, stand at around Rs 3.48 crore. Of this, Rs 1.28 crore, or 37%, is already invested in fixed-income instruments such as SCSS, EPF and FCNR(B).

Within the mutual fund portfolio, the largest allocation is towards domestic large-cap, value and flexi-cap funds at Rs 1.32 crore, or 38% of financial assets.

The investor has another Rs 28.66 lakh in mid-cap funds, Rs 26.46 lakh in large-and-mid-cap funds and Rs 4.41 lakh in small-cap funds. Hybrid and balanced advantage funds account for Rs 17.64 lakh, while international equity exposure through a US-focused fund of fund stands at Rs 15.43 lakh.

Small-cap exposure is significantly lower

One of the key observations from the portfolio review is the investor's skew towards large-cap, value and flexi-cap funds.

The review uses an indicative 55:23:22 allocation across large-, mid- and small-cap stocks as a reference. On an approximate look-through basis, the investor's domestic equity portfolio is around 78% large-cap/value/flexi-cap, 22% mid-cap and only about 2% small-cap.

However, given that the investor's target is only four years away, the recommendation is not to aggressively chase small-cap returns. Instead, the portfolio needs to be structured according to the time horizon and risk associated with the Rs 3 crore goal.

Dividing portfolio into three baskets

Kanchan recommends dividing the investments into three baskets depending on when the money is required.

Basket A — Near-term requirements: This basket should be entirely in debt. The investor should keep around two years of living expenses in liquid and relatively low-risk investments. However, the existing SCSS, EPF and FCNR(B) holdings already provide a sizeable fixed-income cushion, so there may be no need for an additional allocation unless the investor wants a larger liquidity buffer.

The expert suggested Aditya Birla SL Savings Fund and SBI Ultra Short Duration Fund - two ultra short duration funds and Kotak Arbitrage Fund, an arbitrage fund.

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Basket B — Four-year goal: For the Rs 3 crore mutual fund target, the suggested allocation is 60-70% equity and 30-40% debt. The important part of the strategy is to periodically book gains. At the end of each year, enough money should be shifted from this basket to the safer Basket A to lock in gains.

The expert suggested ICICI Pru Savings Fund and Nippon India Low Duration Fund - two debt funds for allocation.

Basket C — Long-term money: For goals beyond four years, the suggested allocation is 80% equity and 20% debt. This could cater to legacy or other long-term requirements, but is not the immediate priority for this investor.

Which mutual funds should the investor hold?

The expert has identified six funds that can continue to remain in the portfolio. These include HDFC Flexi Cap Fund, HDFC Mid Cap Fund, Parag Parikh Flexi Cap Fund, Mirae Asset Large & Midcap Fund, Axis Small Cap Fund and ICICI Prudential Value Fund.

In the case of ICICI Prudential Value Fund, the recommendation is to retain only one of the three folios.

Among these funds, HDFC Mid Cap Fund delivered a three-year CAGR of 20.20% and a five-year CAGR of 20.83%. HDFC Flexi Cap Fund delivered 17.65% and 18.81%, respectively, while Axis Small Cap Fund delivered 17.98% and 17.78% over the same periods.

Funds flagged for rebalancing

Around 11 existing schemes have been flagged for rebalancing. These include HDFC Large Cap Fund, HDFC Hybrid Equity Fund, HDFC Balanced Advantage Fund, ABSL Focused Fund, Franklin India Focused Equity Fund, PGIM India Midcap Fund, Quantum Value Fund, Nippon India Value Fund and ICICI Prudential Value Fund.

The PPFAS NRE folio and Franklin US Opportunities Equity Active FOF have also been identified for review. The expert said that, “Your Franklin US Opp Eq Active FOF (international) sits outside this domestic market-cap comparison and is best reviewed separately given its currency and fund-of-funds structure.”

However, the investor need not necessarily sell all these funds immediately. The expert said that portfolio review points out that switching older holdings can trigger capital gains tax. Hence, some of these schemes could instead be treated as “redirect new flows” candidates rather than immediate exit calls.

The expert has also recommended avoiding fresh investments in multi-asset or hybrid funds, as these can reduce control over the portfolio's overall asset allocation. HDFC Hybrid Equity Fund and HDFC Balanced Advantage Fund have therefore been flagged for exit/rebalancing.

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Fresh investments

For fresh investments, the expert identifies 10 funds across large-cap, large-and-mid-cap, mid-cap, small-cap, focused and multi-cap categories.

The funds shortlisted include ICICI Prudential Focused Equity Fund, Nippon India Large Cap Fund, Invesco India Large & Mid Cap Fund, Kotak Midcap Fund, Sundaram Mid Cap Fund, Edelweiss Mid Cap Fund, Bandhan Small Cap Fund, Invesco India Smallcap Fund, Kotak Multicap Fund and Nippon India Multi Cap Fund.

Among these, Invesco India Large & Mid Cap Fund had a three-year CAGR of 24.81%, while Sundaram Mid Cap Fund and Edelweiss Mid Cap Fund delivered 21.85% and 23.88%, respectively. Bandhan Small Cap Fund delivered 26.95% over three years, based on the data in the review.

The expert said that these are historical returns and should not be interpreted as future return expectations. The review also recommends revalidating the portfolio against the latest CAS before taking action.

NRI investor should also consider taxation

Since the investor is based in the UAE, taxation is another important consideration before restructuring the portfolio.

The expert said that the investor can potentially avail DTAA benefits with a Tax Residency Certificate (TRC), which may help in claiming a tax refund on eligible mutual fund gains generated in India. Therefore, any decision to switch existing mutual fund investments should be taken after assessing the capital gains tax impact.

(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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