How to create good mutual fund portfolio & wealth?

Everyone aims to create a good corpus in their lifetime. However, if you can plan well and create a good mutual fund portfolio, creating good wealth is possible in the medium to long term. In this article, we will understand how to create long-term wealth. We will also see model mutual fund portfolios for high-risk, moderate-risk and low-risk investors.

Before we jump on the ideal mutual fund portfolio, let us see how you can make up your mind for investing in some of these mutual fund schemes.

Step-1 – Create a goal first

Create a goal that is SMART. It should be SPECIFIC, MEASURABLE, ACHIEVABLE, RELEVANT and TIME BOUND.

Examples of incorrect goals are

1) Want to earn Rs 1 Crore

2) I want to earn good money in 10 years

3) I want to earn good money for my child’s education

4) I want to earn 100 crores by investing Rs 5,000 per month

Examples of SMART goals are

1) I want to earn Rs 1 crore in 10 years as a kitty for charitable purpose.

2) I want to earn Rs 35 Lakh for my child’s education in five years.

3) I want to accumulate Rs 2 crore in the next 20 years of my retirement.

In all the above examples, the goals are specific (to achieve specific amount), measurable (we can measure year on year till the tenure), achievable (these are possible tasks) and time bound (specific tenure is given).

Step-2 – Start Saving Money

If you create a goal that is not enough, start saving money as much as you can. There is no hard rule how much money you can save out of your earnings. Work on saving maximum amount every month.

Step-3 – Invest in mutual funds through SIP

Every rupee saved can be invested in mutual funds. You can invest as low as Rs 500 per month through SIP. Increase the SIP amounts every year to achieve your SMART goal.

Step-4 – Invest in a diversified mutual fund portfolio

You would have heard of saying “don’t put all assets in one basket”. Don’t invest your mutual funds in one asset category. You are seeing how the mid cap or small cap funds are taking a beating now. Hence, you should invest in a diversified mutual fund portfolio to get good returns even when markets are under performing.

How many mutual funds should one invest in, in each asset category?

Many investors would think about how many funds they should invest in each mutual fund category. There is no standard rule here. Investors can invest in 5-7 mutual fund schemes.

Best Mutual Fund Portfolio to create wealth in the long term – High Risk investors

Below is the model portfolio for High Risk investors. It contains funds which are from large cap, multipcap, Midcap, smallcap and balanced categories.

1) ICICI Prudential Blue Chip Fund – (Large cap)

This scheme predominantly invests in large cap companies. This fund gave 16% annualized returns in the last 10 years and 20% annualized returns in the last 5 years proving this as a consistent performer in the long term.

2) Aditya Birla Sunlife Frontline Equity Fund – (Large cap)

The scheme seeks long term growth by investing in a diversified portfolio across various industries / sectors as its chosen benchmark index, Nifty 50. This fund gave 15% annualized returns in the last 10 years and 21% annualized returns in the last 5 years proving this as a consistent performer in various market cycles.

3) Mirae Asset India Opportunities Fund – (Multicap)

This MF scheme aims to maximize long term capital appreciation by finding investment opportunities across industries. This fund gave 18% annualized returns in the last 10 years and 25% annualized returns in the last 5 years, making this as a unique scheme among multicap funds.

4) SBI Focused Equity Fund – (Multicap)

The mutual fund scheme aims to provide capital appreciation by investing in a concentrated portfolio of equity and equity related securities. This fund gave 18% annualized returns in the last 10 years and 23% annualized returns in the last 5 years, making this as another unique scheme among multicap funds.

5) HDFC Midcap Opps Fund – (Midcap)

This fund invests predominantly in mid cap companies in India. This fund gave 21% annualized returns in the last 10 years and 30% annualized returns in the last 5 years making this as a unique Midcap scheme.

6) Reliance Small Cap Fund – (Smallcap)

This fund invests in equity and related instruments in small cap companies in India. This fund gave 20% annualized returns in the last 8 years from launch and 38% annualized returns in the last 5 years which is highest among the small cap funds. This stellar performance, making this fund as one of the best small cap fund.

7) Franklin India Smaller Cos fund - (Smallcap)

This fund invests in equity and related instruments of small cap companies. This fund gave 20% annualized returns in the last 10 years and 31% annualized returns in the last 5 years, which is second highest among the small cap funds.

Best Mutual Fund Portfolio to create wealth in the long term – Moderate Risk to High Risk investors

Below is the model portfolio for Moderate Risk to High risk investors. This portfolio consists of large cap, multipcap, Midcap, smallcap and balanced funds. This portfolio reduces the Midcap/small cap funds to only one.

1) Aditya Birla Sunlife Frontline Equity Fund – (Large cap)

2) Mirae Asset India Opportunities Fund – (Multicap)

3) Reliance Small Cap Fund – (Smallcap)

4) ICICI Prudential Equity and Debt Fund - (Balanced)

This scheme invests in equity and related instruments between 60% to 80% in equity and balance up to 20% in debt instruments. This fund gave 15% annualized returns in the last 10 years and 20% annualized returns in the last 5 years, which is second highest among the balanced funds.

5) HDFC Hybrid Equity Fund - (Balanced)

Even this scheme invests in equity and related instruments between 60% to 80% in equity and balance up to 20% in debt instruments. This fund gave 16% annualized returns in the last 10 years and 22% annualized returns in the last 5 years, which is highest among the balanced funds.

Best Mutual Fund Portfolio to create wealth in the long term – Low Risk to Moderate Risk investors

Below is the model portfolio for low Risk to moderate risk investors. This portfolio consists of large cap, multipcap and balanced funds.

1) Aditya Birla Sunlife Frontline Equity Fund – (Large cap)

2) Mirae Asset India Opportunities Fund – (Multicap)

3) SBI Focused Equity Fund – (Multicap)

4) ICICI Prudential Equity and Debt Fund - (Balanced)

5) HDFC Hybrid Equity Fund - (Balanced)

How should we invest in these mutual fund schemes?

Investors can invest through SIP in these mutual fund schemes. Every year they can increase the SIP amount in existing funds or can add 1 or 2 and invest a maximum of 5-7 funds. If you see market correction of say 1,000 or 2,000 points, you can invest a lump sum amount too.

Suresh KP, The author of this article is founder of Myinvestmentideas.com.