September 26, 2010 10:07 am
How to decide the percentage of small and mid cap in portfolio?
i have invested 65% in large cap, 25% mid cap and 5% small cap
I Think 30 % to Mid Cap Fund becos mid cap now a days plays a imp. role Also keep 10- 15 % in Small Cap.
thanks @vipul for insight, appreciate it.
This allocation decision depends on a lot of factors like investor’s age, income, wealth , risk appetite , financial goals & needs and liquidity preference.However as u grow older u need to have a greater proportion of investment in large cap stocks/funds. Some points must be kept in mind – 1. In the beginning u must invest in large cap stocks / funds only. Mid and small cap must be avoided till 5-7 yrs or the point u have a sizeable corpus.2. Once u have a decent corpus , u can take risk by investing in mid and small cap stocks.The % again will depend on your age and risk appetite. It can be vary from 10-40% .The usual age bracket is 30-45 for this stage and the horizon should be long enough – 10-15 yrs so that u can have superior returns.Ur investment in to mid cap stocks / funds should not be dictated by bullish market situations. 3. After age 45 , u need to make a gradual tactical shift from mid and small cap stocks to large cap . The time horizon for this stage should be 10- 15 yrs ideally.It will help consolidate gains u have had in mid and large cap till now.
i feel 20-30% is ok
having said that i also feel direct exposure to small and mid caps will be too risky..
marshaln & Jayaprakash
Should’nt it be linked with how much a person is fine with risk and volatility ? I understand that in general 20-30% would work fine , great answer from Jayaprakash on that .
However there can be people who are not atall confortable with equity also , so for them even large cap is too much , and on the other hand some people might want to allocate 60-75% in midcap which is on extreme side
What do you guys thing ?
I completely agree with Manish. Yes, it has to be on risk appetite of the investor. Thanks for putting up that point.
As small and mid caps are mostly related to high risk and fluctuation category, I would suggest it should be below 30% of total equity allocation
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