It’s advisable to include a few debt funds even if you are investing for long term

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I have systematic investment plans (SIPs) in the following funds: 5,000 each in SBI Small Cap, Axis Blue Chip and Mirae Asset Large Cap; and 4,000 each in Aditya Birla GenNext, ICICI Prudential Long Term Bond, Axis Banking & PSU Debt and Motilal Oswal Focused 25. The equity funds are for long-term goals (15-20 years) such as child’s higher education and marriage, and retirement. The debt funds are for goals that are meant to be achieved in four to seven years. I recently readjusted my portfolio and stopped investment in Axis Long Term Equity and Franklin Build India. I am 33 years old and I have moderate-to-high risk appetite. If I want to increase my savings, should I do so in the existing funds or look at investing in new ones?

—Name withheld on request

For the long-term goals such as children’s education and retirement, you seem to have invested only in equity mutual funds. While it is not wrong to do so, it does make your portfolio susceptible to high volatility. So you need to be prepared to take big falls in your stride and not panic and move out of the funds in such situations. If you think you won’t be able to handle this, invest in some debt funds even for your long-term portfolio.

Continue your investments in all the funds, except Aditya Birla GenNext. Split this amount equally between Kotak Emerging Equity and UTI Nifty Next 50 Index. Hold your investments made so far.

If you want to increase the SIP amounts, use the same funds and don’t add new ones. However, it is important to review your portfolio once a year to ensure that you are continuing with the right funds.

For the debt funds, you have not mentioned how long you have been running the SIPs for. In any case, you can stop SIPs in the ICICI fund and hold investments made so far. The fund needs a holding period of five to seven years, since the nature of the category is that it will go through periods of volatility based on the interest rate cycle. The long time frame will even out these ups and downs. But even if you have done SIPs for a long period in this fund, you can still hold off from making additional investments at this point. Instead, start an SIP in IDFC Bond Fund – Short Term.

Srikanth Meenakshi is co-founder, PrimeInvestor.in. Queries and views at mintmoney@livemint.com

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