Reduce SIPs in small cap funds to contain risk

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I am investing in the below mutual funds (direct plan) since 2017 [Systematic Investment Plan (SIP) per month]

1. HDFC small cap direct growth = 2000

2. HDFC hybrid fund = 1500

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3. ADITYA BIRLA frontline equity mutual fund= 1000

4. ADITYA BIRLA focused equity fund= 1500

My goal is to achieve a corpus of 50 lakhs in 15 years for my daughter’s higher education and also keep some amount for my son’s higher education (he is currently 3 months old)

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I am also investing in the below funds since March 2021 (SIP per month)

1. HDFC mid cap opportunities funds direct growth= 400

2. ICICI balanced advantage funds Direct growth= 1500

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The goal is to achieve 50 lakh in 15 years for my retirement

Name withheld on request

All the three goals that you plan to work on are long-term in nature and mutual funds can play an important role in working towards these goals. You have been investing 6,000 per month for your children’s education since 2017 and if we assume the present value of this investment as 4 lakhs so far, then you will be able to reach a corpus of 50 lakhs in 15 years by continuing the SIP of 6,000 at a growth rate of 12% per annum here on.

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Similarly for your retirement, the present investment of 2,000 per month will help you accumulate around 9.5 lakhs after 15 years at a 12% return per annum. This amount may not be sufficient for you to retire as post-retirement life is usually 20 to 25 years in India. You will need a reasonable amount every month to take care of your post-retirement life. Hence, you may have to substantially increase your monthly investment for retirement or postpone your retirement by few years.

On the funds that you are investing in, you may consider making few changes to further optimize it if it suits your profile. Since your investment period is 15 years for all your goals, you can look at investing SIPs in Large Cap Equity Funds instead of Balanced or Hybrid Funds. 

Across all your SIPs, you are investing 25% in a small cap fund that carries a high risk as small cap companies are more volatile. You can reduce the allocation in small-cap funds by either adding your future SIPs in large cap oriented funds or reduce the present SIP amount of the small cap fund and invest it in a large cap or Nifty Index Fund. Ideally, try to restrict the allocation towards small cap funds between 5% to 10% of your overall investment as these investments have high risk.

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Answered by Harshad Chetanwala, founder MyWealthGrowth.com

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