Aiming for Rs 2 crore in 5 years? Your SIP strategy may be riskier than you think

Time of India

07-05-2025

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Overexposure to Small- and Mid-Cap Funds: A Red Flag
A Need for Balanced Asset Allocation
Diversifying for Stability and Long-Term Growth
In today's era of rising financial awareness, many investors are taking charge of their wealth creation journeys through disciplined SIPs and diversified mutual fund portfolios.However, in the pursuit of faster growth, some portfolios become lopsided, leaning too heavily toward high-risk segments. This imbalance, if unchecked, can hinder long-term goals despite strong intent and commitment.In a recent episode of The Money Show on ET Now, Sanjeev, a focused investor from Pune, reached out for expert guidance on his mutual fund portfolio With a substantial monthly SIP of Rs 1.27 lakh, Sanjeev is aiming to build a corpus of Rs 2 crore in five years.While the investment commitment is commendable, the underlying asset allocation raised red flags.Reviewing Sanjeev's portfolio, financial expert Shweta Rajani of Anand Rathi Wealth highlighted a critical issue — nearly 67% of his investments were channeled into small- and mid-cap schemes.These included funds like Axis Smallcap, Nippon Smallcap, Quant Smallcap, SBI Magnum Midcap, HDFC Midcap Opportunities, and Motilal Oswal Midcap. While such funds have historically delivered impressive returns, Rajani cautioned against an excessively aggressive allocation.Small- and mid-cap stocks are inherently more volatile and sensitive to market cycles compared to their large-cap counterparts.During bullish phases, they can outperform, but they are also the first to fall when markets turn turbulent. An overexposure to these segments can jeopardize portfolio stability, especially if the investor's goals are time-bound and non-negotiable.Rajani recommended that a more prudent allocation to small- and mid-caps should not exceed 40–45% of the overall equity portfolio . This provides the necessary exposure to growth without compromising on downside protection.In Sanjeev's case, a heavy tilt towards riskier segments could create unnecessary stress on the portfolio, particularly if markets become volatile over the next few years.To mitigate this risk, she advised stopping SIPs in funds such as Axis Smallcap, Quant Smallcap, SBI Magnum Midcap, and HDFC Multicap. Additionally, she suggested exiting from the hybrid ICICI Prudential Equity & Debt Fund, which may not be necessary given Sanjeev's high equity allocation and clear growth objective.As safer alternatives, Rajani recommended reallocating to diversified and contra-style equity funds that can provide a broader market exposure with relatively lower risk. These include:These funds can help maintain a balanced approach by investing across market capitalizations and strategies, helping cushion against sharp corrections in any one segment.: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)