Navigating Your Mutual Fund SIP Portfolio: Tips for Optimal Returns

Dear reader, you've made an important investment choice by investing in mutual funds via Systematic Investment Plan (SIP). It's great to see that you're actively monitoring your portfolio, especially when you have 25 funds in it. Out of these, 15 are performing well, generating returns above 10%, while the remaining 10 are below average, with returns ranging from 2-3%. It's natural to wonder what to do next: redeem the underperforming funds or normalize the Net Asset Value (NAV) of these 10 funds?

The Dangers of Over-Diversification

It's important to note that having 25 funds in an individual's portfolio can severely dilute returns and make it difficult to assess the performance of each fund. Investing in one fund is a form of diversification itself, but having 25 funds may not be necessary and could be counterproductive.

According to investment experts, a minimum of 5–6 funds is recommended for a balanced portfolio. This number can vary depending on the individual's financial goals, risk tolerance, and investment horizon. However, the key is to maintain a manageable and focused portfolio. You should visit the Value Research website to better understand mutual funds and learn about the different performance metrics and categories.

Choosing the Right Funds

When selecting mutual funds, it's crucial to focus on top-rated funds within each category. It's advisable to avoid the dividend option if you're focused on growing your wealth. Instead, opt for the growth option, which reinvests earnings back into the fund to maximize potential returns.

A Cautious Approach to Redemption

Given that 10 funds in your portfolio are performing close to average, it might be wise to redeem them instead of normalizing the NAV. This can help you redirect funds into more promising investments or to align your portfolio with your current financial goals. Redemptions can be done strategically to minimize exit loads and tax implications. Short-term capital gains (STCG) and long-term capital gains (LTCG) should be considered when redeeming any funds.

Seeking Professional Guidance

For a more structured approach, consider seeking help from a Certified Financial Planner (CFP). Alternatively, if you have someone you trust, like a relative or a friend, who possesses knowledge about mutual funds, involving them can also be helpful. Utilize the lockdown period to further educate yourself on personal finance management and specifically focus on mutual fund investing.

Many valuable resources are available online. For instance, follow the Value Research website, as it offers a comprehensive guide to mutual fund investing in stocks. Also, consider following the YouTube channel "Yadnya Investment Academy", particularly their mutual fund-related playlists. These resources can provide you with invaluable insights and help you make informed decisions in the future.

My Suggestion for Your Current Scenario

While there are already ample resources available, I believe the following steps can help you navigate your current situation:

Redeem the 10 non-performing funds. This will allow you to reallocate the freed-up capital into funds that are performing better. Re-evaluate the 15 performing funds. Gradually, try to reduce the number of funds in your portfolio while maintaining a balanced and diversified approach. Be mindful of exit loads, short-term capital gains (STCG), and long-term capital gains (LTCG) when redeploying your funds. Seek professional guidance to ensure you navigate these complexities effectively. Attach any new or existing investments to specific financial goals. Having one or at most two funds per goal can help you keep your portfolio streamlined and focused.

While I'm not an expert, I'm still learning and growing in the art of investing. Your scenario led me to share these insights with you, and I hope they will contribute positively to your future mutual fund investing decisions.

If you're still unsure about certain aspects, please feel free to comment below. Your questions and feedback are highly valued and can help improve our collective knowledge on the topic of mutual fund investing.