In my last post I had outlined an MF portfolio that can be quite ideal for people who are willing to take some risks for the prospect of significant growth. However, most investors are really not of the type who can take extra risks. Many have told me that being in equity itself entails a certain amount of risk for their investments and they would rather not take any steps that enhance this further.
This post is about a more well rounded MF portfolio for the long term. The idea will be to invest regularly in these funds over a long period of time. Most of my readers know that I dislike SIP a lot, as it is the quintessential wrong way to buy equity. What you will need to do is fix your annual allocation in these funds and put in the money 3-4 times a year, based on the level of the index corresponding to the fund. There are several posts in my blog where you can get more details of the approach and techniques.
The recommended portfolio is again suggested in one CNBC program, though I have made slight changes to it and I do not agree with the SIP mechanism of buying. The funds are as follows with a brief rationale of their selection:-
- BSL Frontline Equity fund : A great large cap fund which has stood the test of time. Provides stability of Blue chip stocks to the portfolio.
- ICICI Value Discovery fund : An atypical multi cap fund where the focus is on stock selection. Expect it to do really well in Bull markets.
- DSP Small and Mid cap fund : With fresh investments in Micro cap fund stopped, this is possibly the best option in this segment. Expect to see volatility but the stock picks of the Fund Manager are mostly successful and long term returns should be worth it.
- ICICI Balanced Advantage fund : This is an interesting Balanced fund due to the asset allocation mechanism it follows. Expect fairly stable returns from it.
- Reliance Small cap fund : This has been a stellar performer even though the next couple of years may be volatile. Excellent returns are likely over the next 10-15 years.
What kind of returns can you then expect from such a portfolio? Predictions are really hazardous over the long term in equity and for the purposes of planning I do not ever recommend you work with anything more than 12 % XIRR. However, if things go right with the Indian economy, this one can easily give you an XIRR od 18 % plus.
That will of course mean you keep investing regularly as well as buy your units at the right time. Mindless SIP where you put the same amount of monthly money even when markets are at their peak, can only give you sub optimal returns, even with the best of portfolios.