Am I investing in good mutual funds?

I’m 31 years old. I have invested Rs 15,000 in mutual funds over the past two years. I have a high risk profile for mutual funds because I save an equal amount in VPF to balance the risk. I invest in four funds: I recently launched an additional fund of Rs 3,000 in the SBI small cap fund. All are direct funds. I want to know if I should stop investing in the Nippon US Equity Fund. My long-term goal is for early retirement. Please indicate if my investment in a mutual fund is good.

-Sushma Kamat

It looks like you are unclear about your risk profile. Most of your investments are in high-risk plans like mid cap, small cap, and large and mid cap plans.

The risk profile has two parts. First, your ability to take risks. Second, your willingness to take risks. You may have the ability to take risks, but you may not be comfortable taking high risks. Or you may be willing to take a lot of risk, but you may not have the capacity.

It is very important to understand these two factors and find a balance to maximize your returns. It will also ensure that you will continue with your investments for a long time. Take an online quiz if needed.

You should also understand that investing a small amount in multiple plans will not maximize your returns. This often results in over-diversification or duplication. This can dilute the overall returns of your mutual fund portfolio. Once you know your risk profile, be sure to invest primarily in one or two plans that match your risk profile. For example, if you have a moderate risk profile, you should invest primarily in flexi cap funds.

A foreign fund is supposed to offer portfolio diversification. However, when you invest a small amount, you cannot achieve significant diversification. Once you know your risk profile, determine if you need an offshore investment to diversify. If you are unsure of these things, seek the help of a reliable mutual fund advisor.

Additionally, you should adopt a goal-based investment strategy to achieve your longer-term goals. For example, if you want to retire early, find out how much money you need for your retirement. For example, suppose you want Rs 50,000 for your monthly expenses. This means you need Rs 6 lakh every year for the next 30 years. In other words, you need a pension corpus of Rs 1.8 crore (Rs 6 lakh x 30 years). We assume you will retire at age 50 and live to age 80.

Please note that this is an approximate figure. You can include inflation, taxes, returns, etc. in your calculations to make them more accurate. However, such an exercise would help you calculate how much you need to invest each month to build the corpus.


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