I am 48 years and have recently started investing for retirement. Currently, I am putting Rs 1.3 lakh every year in tax-saving funds and another Rs 50,000 in NPS. Would you suggest adding mid- and small-cap fund to my retirement corpus?
Assuming the generic 60-65 years of retirement age, you still have time. But I would say that it is important to keep investment simple.
With tax-saving funds and NPS, there comes forced disciplined psychology, which makes a lot of sense for goals like retirement. Investing in tax-saving funds creates a discipline that you cannot do anything with your investments until three years. Likewise in NPS, your money gets blocked and you cannot do anything till you retire.
However, mid- and small-cap funds can be quite unnerving. Around 2008, small-caps went down by 80 per cent, while large caps went down by 50 per cent. So, in the best-case scenario, your Rs 100 money went down to Rs 50 and in the worst, it went to Rs 20. Although that period lasted only for a year and a half, the point is that with mid- and small-cap funds, one has to build one's own psychology.
Having said that, I would say that multi-cap should be your mainstay. Look out for funds with a consistent fund manager, his performance in a full market cycle and his ability to beat the market. A mixture of two-three multi-cap funds and for fun, an allocation of 10 per cent to mid- and small-cap funds may be sufficient.