Today, the benchmark Nifty 50 index of National Stock Exchange of India has broken the 11,000 level with a bang. The Bombay Stock Exchange’s Sensex too has touched an all-time high of 36,000. This effectively translates into a doubling of the index in a matter of just five years on both exchanges. The Nifty was at around 5,500 in 2013.  

Large-cap funds have delivered an annual return of roughly 15% according to data from Value Research shows. Small-cap funds have DOUBLED this return at roughly 32% per annum over the past five years. In other words, your money in small-cap mutual funds would have gone up four times in the past five years.

In terms of sectors, FMCG Funds have come up on top with a 21% annualised gain over the past five years, followed by Infrastructure at 18%. Next comes the unloved technology sector at 17%. Gold at a five-year return of -2% would have performed worst among the asset classes available but the cycle may be turning as we write here. However, within the equity fund universe, what should you do now?   

  1. Conservative Investors – Time to find your balance

Conservative investors can look at hybrid funds, principally, balanced advantage funds and balanced funds.

Balanced Advantage funds are the more conservative among the two, having an effective equity exposure of 35-60% of their portfolios. However, their clever use of derivatives to achieve this allows them to be treated as equity funds for tax purposes. Balanced Funds, on the other hand, have an equity allocation of 65% at minimum to maintain their tax status. However, these funds will also have a reasonable debt component, to mitigate risk.

Using balanced funds along with debt funds, conservative investors can look to achieve a 30-50% equity allocation.

  1. Moderate Investors – Time to exit small caps

Moderate investors can look towards moving out of mid and small cap funds and into the less volatile category of large-cap funds. If they also have exposure to sector funds such as FMCG or Infrastructure, they can pare this down in favour of diversified funds.

Moderate investors can maintain a 50-70% equity allocation and stick primarily to large-cap funds.

  1. Aggressive Investors – Stay the course, let your profits run

With the index charging past 11,000 and the economy showing signs of revival, aggressive investors can simply stay the course. India’s PMI readings have picked up to the fastest in five years, recent bank results have been robust and a global economic revival seems to be underway. However, increasing your equity allocation at this point may not be a tactically sound move. Stick to Systematic Investment Plans (SIPs) or wait for a correction.

Aggressive investors can maintain an equity allocation up to 90% of their portfolio. However, a small debt/liquid allocation will make sure they have sufficient money for emergencies and/or near-term goals.

  1. If you don’t know what type you are

Don’t worry too much about market levels. If you have not utilised your 80C tax deduction, do an SIP in tax planning (ELSS) funds. For ideas on specific funds, you can look here. If you have used up your tax limit, check whether you have a sufficiently long time horizon and can take some risk. If you meet both conditions, you can look to start SIPs in balanced funds. An SIP over a sufficiently long term will take care of short-term fluctuations.  

Neil Borate

Neil Borate is Deputy Editor, RupeeIQ. He can be contacted at