The Hindu Business Line : Fund Talk

I am a 22-year old software engineer and just started my career. I want to invest in mutual funds in a systematic way, through SIPs. Can you suggest some funds and the right mixture of debt and equity over the long term to build wealth?

Krithika Jawahar

There is no perfect mixture of debt and equity. Several factors, such as your risk appetite, financial goals, near-term commitments and career progress, should be considered before you consider an asset allocation that is right for you. The allocation also periodically changes as your needs and goals vary over time.

You have got off to an early start when it comes to investing. Presumably your financial commitments are not substantial at this stage, so you can afford to have a significant portion (say 60 per cent) of your investible surplus in equity, provided you have a moderate risk appetite and at least a three-year horizon.

Investing through systematic investment plans is a good start to building your portfolio. You can begin by investing in equity tax-saving options, such as HDFC Long Term Advantage, Magnum Tax Gain or Birla Equity Plan. Besides the tax benefits, the returns from these funds, if held over a long-term, is likely to be superior to other options. These funds are also suitable if you are looking for a shorter lock-in period of three years compared to five years and more in other cases.

Besides tax-saving funds, you can invest in a couple of diversified equity funds with a good long-term track record such as HDFC Top 200, Magnum Contra and DSP ML Opportunities. You can also add Sundaram Midcap to the list. Aside from the fact that it has a brilliant track record over the last three years, it makes sense to hold a mid-cap fund in your portfolio to boost overall returns over the long term.

You can opt for the growth option when choosing these funds. Take SIPs for short periods, say six months to a year. You can step up or reduce your investments in a particular fund depending on its performance or after evaluating prevailing market conditions.

Do not spread your investments thinly over too many funds. Pick one or two tax-saving funds and about three diversified funds to begin with. As your investible surplus increases, you can expand your portfolio to accommodate a few more funds.

Avoid investing in new fund offers. Stick to diversified equity funds with a good track record as investing in sector or theme funds is more suitable for an informed investor who is capable of timing their entry or exit from a fund.

Please advise me if I should hold on to UTI Growth Sector Fund-Petro, Reliance Diversified Power Sector Fund, Franklin Indian Flexicap, HDFC Equity Fund and Kotak Midcap.

Manjunath, Mumbai

HDFC Equity alone boasts a long-term track record in your list. The other funds should ideally not be a part of your core portfolio. However, the performance of almost all the funds over the past year has been satisfactory. HDFC Equity and Franklin Flexicap, for instance, are among the top performing diversified funds. You can retain both funds. Kotak Midcap has managed to beat its benchmark the Nifty Junior over the past year. You can hold on to the fund so long as it is not the only mid-cap fund in your portfolio. Funds such as Sundaram Midcap and Magnum Global have delivered a superior performance.

UTI Petro has capitalised well on the run-up in oil stocks over the past three months, gaining about 31 per cent over the period. The fund has a good blend of upstream oil companies and downstream refining and marketing companies, which will help it weather the fluctuation in crude prices. Reliance Diversified Power, with a return of 40 per cent over a year, has outperformed the average diversified fund.

Both funds will add to the overall risk of your portfolio. You can, however, hold on to them over the medium term. These funds will require active tracking and profit booking.

Queries may be e-mailed to mf@thehindu.co.in, or sent by post to Business Line, 859- 860, Anna Salai, Chennai 600002.

Shanthi Venkataraman

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