Dec 19, 2021
Model Mutual Fund Portfolio — Holy Grail Part I
Hey guys……I am sure after so much of discussions in previous posts about almost all possible aspects of Mutual Funds, you must be restless to use your knowledge in practical ways. Therefore lets dive straight into investing. But, the difficulty here is that I have to focus on large audience with varied interests. If you have read the previous posts, especially the one preceding this, you would know that every individual might have different financial circumstances with respect to earnings, expenditures, potential for savings, envisaged future needs and therefore investment horizon. I am confident by now all of you are comfortable with these terms and understand what they refer in practical live. I dare say that, it would be far easier to suggest to one individual but it would be entirely different story to address the large audience. Therefore, instead of giving you pin pointed funds name, I would be keeping the post a little broad based and would suggest few of the top performers among the asset classes in the respective mutual fund categories.
Based on needs, investment capacity and horizon, I would like to group the investors in three broad based categories such as -
1. Less than 25 to 30 years of age, not married, no regular income but want to save prudently to be self sufficient at a later time.
2. Between 30 to 60 years of age, married with or without children and ageing parents, regular income but have to save for future rainy days as well as planned expenditures such as children’s higher education and marriages, building a house etc while saving some for post retirement life.
3. Between 60 to 80 years of age or even beyond, retired with or without pension, have fulfilled most of the commitments but want their money to be safe and growing.
As you can guess, maximum serious investors will fall in the second category and it is reflected in their contribution towards growing MF industry. But, in this post I will be first addressing the category in which I fall, along with many other young talented people, who want to travel on this path to gain financial independence so that they can pursue their life’s mission in diverse fields such as arts, music, sports, innovations in the field of science and technology and even social work.
If you are new to investing and want to start your journey with investments in MFs, first few basics…….it is not mandatory to have a demat account but it helps and offers great flexibility in investing and managing your portfolio. The best part is that, the process of opening a demat account is simpler than completing the KYC (Know Your Customer) formalities required by an AMC (Asset Management Company) to start your MFs.
Secondly, you can online open a three-way demat account in less than 10 minutes where your bank, trading and demat accounts are inter-linked hence offering you seamless services. The only requirement will be an access to a smart device either mobile or a laptop along with PAN and Aadhar Cards. These, in any case would be required by an AMC for KYC too. If you are still less than 18, you can still open a demat account along with one guardian or you may choose to invest through demat account of your close relative such as elder sibling, mother or father.
Lastly, demat account will offer you facility to invest in as many different MFs from different AMCs as you want, which may become a little challenging through a AMC route. Therefore guys, if you do not have a demat account till now…..just keep your PAN Card, Aadhaar Card ready and log on to any bank site of your choice. If you still need help for that, write in comments section and I will help you, or you can just google it, or see many free videos available on Youtube. Ok……with access to demat account or for some reasons, if you choose KYC route….then AMC account, lets start our investment journey in MFs. ……..
Group I → 25 to 30 Years of Age + No Regular Income — The biggest consideration for this group is how much can you invest and how often. Of course, you do not have a definite answer and many times the amount available with you might be lesser than Rs 500/- ( least required to invest in MFs). The best bet for such people is to invest in Exchange Traded Funds or ETFs. The beauty is you can choose ETFs in most asset classes such as equity, bonds and even commodities such as gold etc. You can also choose indices such as my favourite Nifty 50 and S&P 500 or from any sector specifics such as auto, metals, IT, banks etc.
Practical Tip: — If this is your first time, I would recommend starting your investment through Nifty BeES, the most popular fund house for that is Nippon. however, never ever be in hurry to invest, even if it is ETFs such as Nifty BeES. Whenever, market corrects (indices such as Sensex and Nifty tumbles down), it is the golden opportunity to invest. But it is practically impossible to time the market, Therefore, just check news once a day for upto 5 working days or for a week, and whenever the market is at its lowest….its time for you to invest….or else, the best way will be to use inflection points lines (support -resistance) to decide the entry point.
Another important thing to keep in mind is to diversify and never put all your eggs in one basket. Though indices driven MFs in themselves are diversified but even then, it may be beneficial to not restrict to just one sector or asset class. Since Nifty BeES is the broadest base index, it may be allocated upto 50% of the portfolio, the remaining money needs to be diversified in at least 3 to 5 more sectorial indices such as IT, Auto, banks, metal and infra with almost equal division to absorb sector driven shocks as well as to benefit from a boom in a specific sector as can be seen in IT sector in present times.
Are ETFs the only option??? Certainly not…..but this is certainly the most popular, efficient and hassle free investment which I would recommend to all my young friends who either do not have sufficient money or do not wish to dig too deep to follow equity investing route. Choosing a MF is a good option but would need minimum Rs 500/- for SIP or through lump-sum route. Therefore, even if you are attracted to one of these options….you can still park your money to build a sufficient corpus to invest in other options. The biggest advantage of ETFs is that it does not have any entry or exit load and can be traded like a normal share on the NSE or BSE and this ensures that the money invested is almost like liquid cash.
However, if you are able to spare some cash at regular intervals or in lump-sums, I would equally recommend investment in Blue Chip funds along with IT, emerging businesses, banks and either gold or a debt funds in equal ratios. But, for encouraging results, these investments would have to be continued or at least held till at least 3 to 5 years time.
Guys…..go ahead and explore these options even if you have limited money. The current trading price for Nippon India ETF Nifty BeES is Rs 184.19/- averaging a upside of about 15% in six months 41% in a year. Even if I were to invest in irregular intervals with money as low as Rs 200/-, I would have accumulated a return of around 20% annually with this option. You too, with commitment and care, will have a healthy portfolio of which you will be proud of as this will be entirely your hard work. That’s all for now guys….see you next week with discussions on the second group of investors.
But, before we say bye….let me request you guys to show your appreciation by hitting the clap button on bottom left and if you have joined recently please do hit the FOLLOW button on top right.
Join Coinmonks Telegram Channel and Youtube Channel learn about crypto trading and investing
