Maximum percentage allocation to mid- and small-cap funds in a portfolio

What should be the maximum percentage allocation to mid- and small-cap funds in the portfolio of a 50-year-old aggressive investor?
- Jeewan Dabra

Well, there is no set percentage but the broad guideline is that these funds are meant for the supplementary allocation. So, even in the case of an aggressive long-term investor, mid- and small-cap funds should not have more than 25-30 per cent allocation in the overall portfolio.

Now, in your case, more than your age, it should be dependent on your investing needs. So, if you are looking to use this money to drive regular income say 8 to 10 years down the line, which is approximately the time when you may be looking to retire, then I would suggest you should avoid investing too much in mid- and small-cap funds or pare it down if you already have those investments and stick to the more mainstream flexi-cap kind of funds, as they themselves have limited exposure to mid and small caps and that should be good enough.

But on the contrary, if you are not looking to derive regular income from these funds and you can continue to remain invested for say 12-15 years or more, then you can continue to have these investments in your portfolio subject to that 25-30 per cent upper limit to these allocations as I mentioned.

This article was originally published on March 30, 2021.