For many, 30 is THE tipping point of their adulthood life. You are not a bachelor and have a family to take care of. So, to be financially stable, investment should take the top spot on your priority list. And mutual funds are the best way to participate in the market for ordinary people. So in this article, we will curate the best aggressive mutual fund portfolio for 30 year old investors.
While investing in mutual funds, most people select the fund that has generated the highest return in the last three to five years and start ‘dumping’ their hard-earned money.
And that is a super-bad way to invest in mutual funds, if not the worst.
So in this article, we made an aggressive mutual fund portfolio for a 30-year-old investor. The mutual fund portfolio we built is best suited for an aggressive investor with a moderately-high risk tolerance.
Though with subtle tweaking, we can simmer down the portfolio for an investor with a low-risk appetite.
- What Is The Ideal Mutual Fund Portfolio Allocation For a 30-Year-Old Investor?
- Aggressive Mutual Fund Portfolio For 30-Year-Old Investors
- How Much Should You Invest In The Aggressive Mutual Fund Portfolio?
But before we start, here are some assumptions we made while constructing this mutual fund portfolio.
You are willing to save at least 20%, if not more, of your take-home salary.
You are not investing elsewhere at the moment, even for tax savings.
What Is The Ideal Mutual Fund Portfolio Allocation For a 30-Year-Old Investor?
60% in Large Cap mutual funds, 20% in Midcap funds, and the remaining 20% of the investment capital in Smallcap funds will be the ideal mutual fund portfolio allocation for a 30-year-old person.
The classic rule of investing in mutual funds says that your age should be the percentage of your portfolio allocated toward debt funds.
For example, if your age is 30 years, then 30% of your portfolio should be allocated toward debt investment.
But we should remember that this rule was developed in the US market, which is an evolved and mature market.
The US mutual funds and ETFs market matured long before mutual funds became a trend in India.
The Indian stock market is still nascent, as only 3% to 4% of Indians invest in the stock market. Whereas, in the US, the number of adults investing in the US stock market is above 50% as of February 2023.
The Indian market has a long road to traverse before rules developed in the US market become applicable in India.
So, even if you are a 30-year-old conservative investor who doesn’t like volatility in their portfolio, allocating a significant portion of your portfolio to Large Cap equity mutual funds can provide better returns with less volatility in the long term.
Below is the 10-year chart of the SBI Bluechip Fund, a Large Cap equity mutual fund from SBI Mutual Fund.
As you can see, with minimal volatility (other than the market crash during the 2020 pandemic), the fund has generated an annualized return of 15% over ten years.
So, the aggressive mutual fund investment portfolio we made in this article doesn’t have any debt funds.
One of the reasons we have excluded debt funds from this portfolio is because of the tax complication debt investing carries.
And practically speaking, at the age of 30, you really don’t need debt elements in your investment portfolio.
But do remember that the scenario changes if your age is 40, 45, or 50 years. As you age, you slowly need to increase your allocation towards debt, even in India.
Ok. Now, let’s start building the mutual fund portfolio for aggressive investors.
Aggressive Mutual Fund Portfolio For 30-Year-Old Investors
This mutual fund portfolio is for aggressive investors who are willing to take a bit more risk than others. The portfolio has a higher risk due to the inclusion of the small-cap mutual fund.
Small-cap mutual funds can be highly volatile in the short term, though it all evens out if you have a long investment horizon.
The picture below is an example of the short-term volatility of a small-cap mutual fund.
Within a few months, investors in a small-cap mutual fund lost more than 36% of their investment value during the 2020 pandemic crash. But recovered quickly and touched new highs once the panic disappeared.
So, we would ask our audience to be careful and have a long investment horizon when dealing with small-cap mutual funds.
Characteristics of The Aggressive Mutual Fund Portfolio
- Nature Of The Mutual Portfolio – Aggressive
- Preferred Age Group – From 30 Years Old to 34 Years Old
- Risk Appetite of The Investor – Moderately-High to High
- Portfolio Allocation –
Large and Midcap Combined – 80% or More
Smallcap – 20% or Less
- Mutual Funds Used In This Portfolio –
Quant Tax Plan – Direct Plan – Growth
Large And Midcap Mutual Fund –
Mirae Asset Emerging Bluechip Fund – Direct Plan – Growth
Canara Robeco Emerging Equities – Direct Plan – Growth
Smallcap Mutual Fund –
Nippon India Small Cap Fund – Direct Plan – Growth
DSP Small Cap Fund – Direct Plan – Growth
- Investment Horizon –
Minimum – 5 Years
Recommended – 7 Years or More
- Recommended Monthly Investment Amount – Rs. 25,000/- and Above
Now, let us talk about each of the funds briefly.
ELSS or Equity Linked Savings Scheme Mutual Fund
When you receive your salary, taxes should be the first thing you need to worry about.
As said by Ben Franklin –
ELSS mutual fund or Equity Linked Savings Scheme mutual fund provides the best way to save Rs. 1,50,000/- to enjoy the tax deduction under section 80C of the Indian Income Tax Act.
Only a handful of ‘quality’ ELSS funds are currently available in India.
Other than the Quant ELSS fund mentioned above and used in this mutual fund investment portfolio, the other contenders were the ELSS funds from Mirae Asset, IDFC, Axis, and Canara Robeco.
But, the ELSS from Quant, i.e., the Quant Tax Plan fund, had the best performance metrics and ratios among its peers.
We won’t go supertechnical about the details of the fund, but here are a few crucial parameters.
Though the Quant Tax Plan fund has a slightly higher Beta of 0.92 compared to the category average of 0.89, the fund has a Sharpe Ratio of 1.24, which is very good.
The value of these ratios changes according to the fund’s performance, so we would ask our readers to check these ratios before investing.
If you don’t know about the Alpha, Beta, and the Sharpe Ratio of a mutual fund, don’t worry. We have an article explaining every aspect of a mutual fund.
Though the ELSS fund from Quant came into the spotlight after it gave exponential returns starting from the pandemic low of March 2020, it had been a constant outperformer for the last ten years.
In the last ten years, the fund has generated an annualized return of 21.46% per year.
As of January 2023, the Quant Tax Plan fund has an Expense Ratio of 0.57%. It means at the end of the year, Quant will be deducting 0.57 paise for every Rs. 100/- invested.
You can think of Expense Ratio as a management fee the fund charges for looking after your money and investment.
Now the question is –
How Should You Invest In an ELSS Fund?
The best way to invest in any mutual fund is through the SIP or Systematic Investment Plan method, and investing in an ELSS fund is no different.
You need to invest Rs. 12,500/- per month (or, Rs. 1,50,000/- per year) in the ELSS fund of your choice to enjoy the full benefit of Section 80C.
Or, in this case, the Quant Tax Plan fund.
And before investing, do double-verify that the fund you invest in is the Direct and Growth plan.
After you have completed your monthly investment quota in the ELSS, you can diversify your portfolio by investing in a Large and Midcap mutual fund.
Large And Mid-Cap Mutual Fund
According to SEBI’s law, a mutual fund in the Large and Mid-Cap category has to invest 35% of its Total AUM in Large Cap companies and another 35% of its Total AUM in Mid-Cap companies.
Though investing in Mid-Cap companies can be relatively risky, it can boost returns if risks are calculated correctly.
That is why some of the famous funds in the Indian mutual fund industry belong to this Large and Mid-Cap category.
Many first-time mutual fund investors start their mutual fund investment journey with the Mirae Asset Emerging Bluechip Fund.
And there is a reason for that.
As you can see below, the Large and Mid-Cap fund of Mirae Asset has generated an annualized return of more than 22% for the last ten years. And that is what nearly 90% of retail investors look at.
No doubt, a 22% annualized return for ten years is a tremendous feat to achieve, but that shouldn’t be the only metric for you to blindly invest in a fund.
The same is for the Canara Robeco Emerging Equities fund.
The Large and Mid-Cap fund of Canara Robeco generated an annualized return of more than 20% for the last ten years.
Let us now look at a few fundamental metrics of these two funds.
Though both the funds have a slightly higher Beta than their category average, the returns generated by the funds make up for it.
A fund with a higher Beta value will have higher volatility.
Both Mirae Asset Emerging Bluechip Fund and Canara Robeco Emerging Equities have a higher Sharpe Ratio than their peers. A higher Sharpe Ratio means a particular fund is able to generate more returns by taking less risk.
And the fund of your choice should be able to produce more returns with the least amount of risk possible.
Till now, both the funds look fundamentally similar, but one needs to look at the Alpha of these funds too.
The Alpha of a mutual fund is a ‘directional’ fundamental metric that tells us whether a mutual fund has outperformed or underperformed.
If a fund underperforms, the Alpha value will be negative. You want your mutual fund to have a ‘higher’ and ‘positive’ Alpha value.
According to Morning Star, the Mirae Asset Emerging Bluechip Fund has an Alpha of 2.66 as of January 2023. In comparison, the Canara Robeco Emerging Equities has an Alpha of 1.70 during the same period.
It tells us that the Mirae Asset Emerging Bluechip Fund has a tendency to outperform its peers and the index.
If terms like Alpha, Beta, and Sharpe Ratio of a mutual fund sound alien to you, then don’t worry. We have a super detailed article explaining every term. And we have also compared these two funds in that article with one other fund from the same category.
Now let us talk about the Expense Ratio of these two funds.
Both Mirae Asset Emerging Bluechip Fund and Canara Robeco Emerging Equities have a similar expense ratio of 0.69% and 0.60%, respectively.
It means that the Large and Mid-Cap fund of Mirae Asset will be charging 0.69 paise for every Rs. 100/- invested each year. Whereas, the fund of Canara Robeco will be charging 0.60 paise per year for every hundred Rupees invested.
Investment Limitation in Mirae Asset Emerging Bluechip Fund
Mirae Asset, the asset management company (AMC) behind Mirae Asset Emerging Bluechip Fund, has restricted the amount of money you can invest in their flagship Large and Mid-cap fund.
You cannot invest in the Mirae Asset Emerging Bluechip Fund via the Lumpsum method. As of January 2023, the only way you can invest in the Large and Midcap fund of Mirae Asset is through the SIP method.
The maximum amount you can invest in the Mirae Asset Emerging Bluechip Fund via the SIP method in a month is Rs. 2,500/-.
If your monthly SIP amount for the Mirae Asset Emerging Bluechip Fund exceeds Rs. 2,500/-, you can invest the rest into another Large and Midcap equity mutual fund.
The reason behind such a restriction is the amount of inflow compared to the investment opportunity the fund could find.
Mirae Asset Emerging Bluechip Fund was receiving too much money than the opportunity the fund managers could find in the market to deploy those investments. And the AUM of the fund was growing too big too quickly for the AMC and the fund managers to manage.
The fund became too popular among mutual fund investors, and people literally started dumping money into the fund.
Now let’s talk about the Smallcap fund in this portfolio.
Smallcap Mutual Fund
For this aggressive mutual fund portfolio, we have selected two of the best-performing Smallcap mutual fund. You don’t need to invest in both of them. You can analyze and choose the best fund that suits you.
Before diving deep into these two Smallcap funds, we will again remind you that investing in small-cap companies or small-cap mutual funds carries substantial capital risk.
You need to have the risk appetite to see a more than 40% fall in your investment value and still hold on to your investment for dear life.
As shown earlier in this article, small-cap companies and mutual funds are the ones that fall the hardest during uncertain times like the pandemic.
Both Nippon India Smallcap Fund (previously known as Reliance Smallcap Fund) and DSP Smallcap Fund have given handsome returns to their investors.
As of January 2023, both funds have generated an annualized return of 25.50% and 21.50%, respectively, for the last TEN years.
While Nippon India Smallcap Fund manages a humongous AUM of more than Rs. 23,700 Crores, the AUM of DSP Smallcap Fund is just over Rs.9,100 Crores as of January 2023.
Now let us briefly see the fundamentals of these two small-cap mutual funds.
According to Morning Star, as of January 2023, the Beta value of both the small-cap funds are quite similar.
Nippon India Smallcap Fund has a Beta of 0.98, while DSP Smallcap Fund has a Beta of 0.93. And the Beta value of the Smallcap Category is 0.91.
It means both funds have slightly elevated volatility compared to the Category Average.
And it is pretty natural for small-cap equity mutual funds to have high volatility because they are the ones to react to the slightest hint of good or bad news.
Now to the Sharpe Ratio of the funds.
According to Morning Star and Money Control, the small-cap fund of Nippon India has a Sharpe Ratio above 1. While the Sharpe Ratio of DSP Smallcap Fund swings between 0.85 and 0.90.
And as we learned earlier, Sharpe Ratio tells us how much returns the fund generated for every unit of risk it took. A higher Sharpe Ratio is what you should desire for your fund.
As Nippon India Smallcap Fund has the highest Sharpe Ratio among the two, the fund generated better risk-adjusted returns than DSP Smallcap Fund.
Now let us focus on the Alpha values of the funds.
Earlier, we learned that Alpha is a ‘directional’ fundamental metric of a mutual fund. And we want our fund’s Alpha to be positive and higher than its peers.
As of 31st January 2023, DSP Smallcap Fund has an Alpha value of 1.63, while the Smallcap Category Average is 2.69.
It means the small-cap mutual fund category as a whole performed better than the DSP Smallcap Fund.
It is not a good sign for the small-cap fund of DSP.
The Alpha value of Nippon India Smallcap Fund is a whopping 5.27.
And this is where DSP Smallcap Fund lost the game to Nippon India Smallcap Fund.
The small-cap fund of Nippon India gave far better returns compared to the DSP Smallcap Fund.
With slightly higher volatility, Nippon India Smallcap Fund outperformed the DSP Smallcap Fund by quite a large margin.
Now, let’s discuss the Expense Ratio of these two small-cap funds.
Both Nippon India Small Cap Fund and DSP Smallcap Fund have a similar expense ratio of 0.86% and 0.90%, respectively.
It means that the small-cap fund of Nippon India will be charging 0.86 paise for every Rs. 100/- invested each year. Whereas the small-cap fund of DSP will be charging 0.90 paise for every Rs. 100/- invested.
Though a 0.04% difference in the Expense Ratio might seem small and negligible, it would have a huge impact when the total value of your investment in the fund becomes big over time.
For example –
If you have invested Rs. 20 lakhs in a fund and it has increased to Rs. 30 lakhs over multiple years, a fund with a 0.04% higher Expense Ratio will cost you Rs. 1,200/- more per year, compared to a fund with lower-Expense Ratio.
How Much Should You Invest In The Aggressive Mutual Fund Portfolio?
As the above mutual fund portfolio is aggressive in nature and can be volatile sometimes due to the inclusion of the small-cap fund, you should be extra careful when allocating your investment amount into each fund.
You should allocate at least 80% of your investments towards the ELSS and Large and Midcap mutual funds. And the rest 20% of your investable corpus should be allocated toward the small-cap mutual fund.
You also have to remember that if you want to enjoy the full benefit of tax deduction under Section 80C using the ELSS mutual fund, you need to invest a minimum of Rs. 12,500/- per month into the ELSS fund.
Investment Allocation In The Aggressive Mutual Fund Portfolio
- ELSS Mutual Fund – 50%
- Large and Midcap Mutual Fund – 30%
- Smallcap Mutual Fund – 20%
Let us understand the investment allocation using an example –
How To Invest Rs. 25,000/- Per Month At The Age Of 30?
If you are a 30-year-old investor investing Rs. 25,000/- per month via SIP in the Aggressive Mutual Fund Portfolio, then –
50% of Rs. 25,000/-, that is Rs. 12,500/-, should be invested into the ELSS fund. It also fulfills the monthly tax savings investment quota.
Now the investor has Rs. 12,500/- left to distribute among the Large and Midcap fund and the Smallcap mutual fund.
Rs. 7,500/-, which is 30% of Rs. 25,000/-, needs to get invested into Large and Midcap mutual funds.
As we saw above, the best Large and Midcap fund in India as of February 2023 is the Mirae Asset Emerging Bluechip Fund.
But you can only invest Rs. 2,500/- per month via SIP in the flagship fund of Mirae Asset.
So the best option for you to invest Rs. 7,500/- in Large and Midcap category mutual funds is –
Invest Rs. 2,500/- in the Mirae Asset Emerging Bluechip Fund, and the rest Rs. 5,000/- in the second best fund in the Large and Midcap category, that is Canara Robeco Emerging Equities.
You can invest the remaining Rs. 5,000/-, which is 20% of Rs. 25,000/-, in the Smallcap mutual fund.
The aggressive mutual fund portfolio we made is most suitable for 30-year-old investors who have an above-average risk appetite.
The mutual fund portfolio contains three kinds of funds. Namely – ELSS or Tax Saving mutual fund, a Large and Mid-cap mutual fund, and a Smallcap mutual fund.
The ELSS mutual fund in the portfolio has a double benefit. It provides tax savings under Section 80C while acting as a Large Cap fund in the portfolio.
The Large and Mid-cap fund in the portfolio will bring in the high-return-generation capabilities of mid-cap companies while providing stability with the help of large-cap companies.
Though the inclusion of a smallcap mutual fund in the portfolio will generate handsome returns during the bull market, it will test the strong-headedness of the investor during the bear market.
Smallcap companies or mutual funds will rise the most in a bull market and fall the hardest in a bear market.
That was it.
We hope you have understood the ins and outs of the aggressive mutual fund portfolio and its components.
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Good Luck and Happy Investing! 😊
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