How many flexi-cap, mid-cap, and large-cap funds would you suggest to create wealth over the long term (10 years or more)? I have a total amount of about rupees one crore to be invested.
- PC Garg
There are different ways of building a mutual fund portfolio for this large sum of money. This categorisation of a large sum or small sum is a very relative thing. If this is your lifetime saving, then it is a very large sum. If this one crore is the amount realised from one of your small assets and can be invested for longer, that is a different issue. So a lot goes into approaching your investment and how relevant it is in an individual's context. But I'll just give you different ways in which you can build your portfolio.
If this is a large sum of money for you, you should spread your investment in three-four flexi funds into monthly installments over the next 18 months to three years, depending on its relevance. This way, you will be achieving great diversification across different skill sets of fund managers belonging to various fund companies. Also, one or two funds among these should have some allocation to international stocks as well.
If you have to build a small-cap, mid-cap, and large-cap portfolio, there are different ways to build it. One is that large-cap allocation could be 60-70 per cent and can be represented by a very low-cost index fund. The remaining allocation, which could be 30-40 per cent, could just be in one fund because within an index fund, you don't get to choose as diversification there doesn't matter because it is passively driven. You should just buy the largest one and the cheapest one, and that's it. With small-cap and mid-cap, I think two to three mid-caps and one to two small-caps will make it a complete portfolio. So this is another way of building your portfolio.
The third way of building a portfolio, which is very low maintenance and a little conservative, is having two to three aggressive hybrid funds that are disciplined with their asset allocation. You don't have to worry about rebalancing your asset allocation as all your investments will automatically get rebalanced. Also, your funds will not fall very dramatically during any market fall, so that is also a very comforting thing. Because we all look at the upside of the equity market, I think the most difficult phase for any investor is the downside, the free-falling phase of the market. That is when it becomes tough to remain invested.