Flexi-cap, mid-cap, small-cap and gold ETF. Is this a balanced mutual fund portfolio for young investors?

One such query came from Aarohi, a 22-year-old investor and a viewer of The Money Show on ET Now, who has begun investing through mutual funds with the broad objective of wealth creation, but without a fixed time horizon.

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Aarohi currently invests Rs 20,000 every month through SIPs — Rs 10,000 in Parag Parikh Flexi Cap Fund, and Rs 5,000 each in Bandhan Small Cap Fund and Motilal Oswal Midcap Fund. In addition, she has made a one-time investment of around Rs 6,500 in HDFC Gold ETF. While she does not have a clearly defined goal yet, she wants to know if adding a large-cap fund – ICICI Prudential Large Cap Fund – makes sense, whether her fund allocations need adjustment, if she needs to increase or decrease the investment amount, and what kind of corpus she can expect over the next 10 years.

Responding to her questions, financial expert Harshvardhan Roongta, CEO, CFP, Roongta Securities said that not having a specific goal at the age of 22 is fairly common and should not discourage young investors.

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“So, the good part that I will just highlight one is that she said very clearly that I do not have any specific goals, but I want to create wealth,” Roongta said.

In one of her questions, she mentioned the time horizon as 10 years so putting together her goal to create wealth and having an investment horizon of 10 years, Roongta said if you put these two factors in consideration, we can assume that 10 years is something that she is looking to invest in and now another attitude is also fine which is that many people do not have a clear goal at this juncture.

Roongta further said that, “She is 22, so she does not know that whether she is going to go for higher education, she is starting a business, I do not know, so that is fine, it is absolutely normal to have that kind of an approach. So, however, the idea is that you have some liquidity right now with you, so you say, let us park it aside, otherwise they will get spent.”

Recommending to start allocating and marking the purpose for which you are investing for as the prudent approach, the expert said that even if she does not have a clear financial goal it is a good beginning to make.

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On Aarohi’s plan to add a large-cap fund such as ICICI Prudential Large Cap, Roongta explained that her one of the existing fund in her portfolio – Parag Parikh Flexi Cap Fund – already provides sufficient exposure to large-cap stocks as approximately 93% allocation is toward largecaps, the balance 7% is split between mid and smallcap.

This makes it functionally similar to a large-cap fund, reducing the need to add another scheme in the same category. Adding multiple funds with overlapping exposure may not improve diversification.

Addressing her small-cap exposure, Roongta said that he thinks that she could avoid a pure smallcap fund and invest in smallcap selectively through a multicap or a flexicap.

But Bandhan Small Cap, which is there in her portfolio, is a good fund to have in the category, and if Aarohi is comfortable with a small cap fund and the fluctuations, continuing the SIP is reasonable.

On whether she should add more funds or increase investment amounts, Roongta advised caution. He believes her current portfolio of three equity funds — covering large, mid, and small-cap segments — is well balanced for now. Instead of adding more schemes, she should focus on increasing her SIP amounts gradually as her income grows. Any major changes can be reviewed at a later stage.

Gold allocation was another point of discussion. Roongta noted that gold or precious metals should typically form about 10% to 15% of an investor’s overall portfolio. Say if the portfolio size is Rs 1 lakh, then the total allocation towards precious metals would be Rs 10,000 to Rs 15,000. While Aarohi can increase her allocation to the gold ETF over time, it should be done in proportion to the total portfolio value rather than as an aggressive investment bet.

“So, evaluate what the fund value is and ensure that you top up the gold fund with that much amount so that the allocation comes to about 10% to 15%,” Roongta further said.

Finally, on the question of wealth creation, Roongta offered a realistic estimate. Assuming a 12% return from the equity portfolio and not taking gold into consideration for a reason that she made a one time investment and not sure what is going to be the future inflows into that fund.

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So if Aarohi continues investing Rs 20,000 per month in equity mutual funds and earns an average annual return of 12%, she could build a corpus of roughly Rs 45–46 lakh over 10 years.

Aarohi’s case highlights a key lesson for young investors — starting early, keeping the portfolio simple, and staying disciplined can go a long way in building long-term wealth, even without perfectly defined goals at the beginning.

One should always consider their risk appetite, investment horizon and goals before making any investment decision.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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