**In some of my blog posts this year, I have written about how one can build a Mutual fund portfolio with the new categories that SEBI has come up with. However, I still get a lot of enquiries on how investors, especially new ones, should go about building an MF portfolio. In this post let me show you how to build one from scratch.**

**Before we get into looking at the types a starting investor should invest in and what funds he can look at, let us first recap the types of equity funds SEBI has come up with.**

**Multi cap fund****Large cap fund****Large & Mid cap fund****Mid cap fund****Small cap fund****Dividend yield fund****Value fund / Contra fund****Focused fund****Sectoral/Thematic fund****ELSS**

**For an experienced investor all of these fund categories may have some use or the other in their portfolio. However, if you are at the starting point of your investment journey then my recommendation will be that you only look at 3 fundamental categories along with an ELSS fund for tax saving for the first 5 years or so. In fact, I will want you to forget the ELSS if you have enough money to invest in your MF portfolio and some good debt investment like PPF separately.**

**Ok, so without further ado, here are the fund types you need to have in your portfolio and some of the schemes which you can choose from.**

**Large cap fund****HDFC Top 100****ICICI Prudential Blue chip fund****ABSL Front Line Equity fund**

**Mid cap fund****HDFC Mid cap opportunities****Franklin Prima fund****DSP BR Mid cap fund**

**Small cap fund****DSP BR Small cap fund****Franklin India Smaller companies fund****HDFC Small cap fund**

**Let us now see how you can create a portfolio from scratch. I will only outline the process here and if you are interested you can go through the various posts in my blog to get more details on the concepts and reasoning behind those.****Based on your life goals, identify the time line for each major goal and understand how much of financial commitment they would require at those times. For example the college education of your son may need an amount of 40 lacs in 10 years.****Once you know the time lines and the amounts, look up an SIP calculator and calculate the SIP amount you will need to invest every month. Use a return of 12 % to be on the conservative side. In the above example, to get 40 lacs in 10 years time at 12 % XIRR, you will need to do a monthly SIP of 17388 Rs.****Do the above for all your goals and add up these amounts. This will give you the total monthly investment you need to do all your financial goals comfortably.****Now look at your age to decide on your risk taking ability and therefore the ideal asset allocation. My suggestion will be the following :****If you are less than 35 years old put 40 % in Mid cap funds, 35 % in Small cap funds and 25 % in Large cap funds.****If you are between 35 and 45 years old put 30 % in Mid cap funds, 25 % in Small cap funds and 45 % in Large cap funds.****If you are above 45 years old put 20 % in Mid cap funds, 20 % in Small cap funds and 60 % in Large cap funds.**

**Once you have decided on the allocation, just pick out one fund out of each category and start investing. Do not worry about which fund as all of these are good and in the long run it does not really matter which one you have chosen. However, try to make sure that you have funds from at least 2 fund houses, preferably 3.****A sample selection can be ICICI Prudential Blue chip for Large cap, HDFC Mid cap Opportunities for Mid cap and DSP BR Small cap fund for Small cap.****Once you have decided on the monthly amounts, just set up an automated SIP and let the money get invested every month.****You will need to do an annual review but that is a different story altogether.**

**I hope most people would have found this useful. Recently I was approached by a reader who wanted me to create a portfolio for him. I will share this in another post.**