The Hindu Business Line : Fund Talk

I am concerned about the funds I have chosen. I had invested in PruICICI Child Care Gift Plan when the NAV was 35. Now it has fallen to 32. What is the composition of this fund, and the risk associated with it?

I invested in the newly launched Templeton Equity Income Fund. Has it lived up to its mandate of investing in overseas markets? Should I exit these funds? How would you rate my other investments in Franklin Prima, Franklin Prima Plus, HDFC TaxSaver, HDFC Top 200, Reliance Vision, Reliance Growth, Franklin Flexicap, Reliance Tax Saver, HDFC Equity, Fidelity TaxSaver and Magnum Contra. All my investments were made through SIP last year when the market was doing well. As the market tanked, my returns ended up in the negative. I am 28. What should I expect over a five- year horizon.

Vikram Choudhary

Sonipat

PruICICI Child Care Gift Plan is aimed at investors who are saving for their children's education. Investors in the fund are expected to have a sufficiently long-term horizon, ranging from 6-17 years. In order to qualify as an equity-oriented fund under the new tax laws, the fund has shifted its equity allocation from about 50-60 per cent earlier to 65-80 per cent. This has been the trend across several balanced funds. As of July, the fund had about 60 per cent invested in equity and about 20 per cent in short-term debt. About 20 per cent of its equity investments are in mid-cap stocks. The portfolio composition and risk profile are similar to that of other balanced funds.

Gift Plan has delivered a return of 19 per cent over the past year, underperforming both the Crisil Balanced Fund Index and its category. Yet, it may be premature to exit this fund. Presumably, it is a long way off before your child goes to college. Short periods of underperformance should not bother you. Right now you are only marginally out of the money. If you exit now you will also be charged a load of 1 per cent. Therefore, it might be better to hold on to the fund at this juncture. You could, however, avoid fresh exposures in the fund as it might drag the returns of your overall portfolio.

In fact, you might be better off investing in a combination of equity and debt funds in the future. For instance, had you invested 60 per cent in PruICICI Power and 40 per cent in PruICICI Income Multiplier, your returns over the past year would have been vastly superior at 30 per cent.

Also, it is not necessary to maintain a separate portfolio for your child at so early a stage. By the time your child is three to four years away from going to college, you would have built a reasonable corpus through your own investments. You could then put the money you expect you will need in a safer investment option, perhaps a bank FD that will mature in time to pay for college admissions. Templeton Equity Income Fund has the mandate to invest up to 50 per cent in foreign equity. However, the fund had not yet begun to invest in foreign stocks. This was possibly because of the lack of clarity on the foreign investing guidelines, particularly with regard to the ceilings on investments made by individual funds.

Recently, however, SEBI has announced a $100-million limit on individual fund investments in foreign equity. With this clarification, the fund is likely to begin investing in foreign stocks. However, considering that the fund has an asset base of close to Rs 2,000 crore, investments in foreign stocks could be limited to a mere 20 per cent of its assets, thanks to the ceiling.

The fund invests in stocks with a high dividend yield. As such, it may invest in stocks that are, typically, rich in cash but temporarily out of favour. You will have to hold on to the fund over a long period to reap the benefits of value investing.

The other funds in your portfolio appear to be reasonably good choices. Instead of debating whether or not you should invest in choppy markets, continue with your SIPs, as a matter of financial discipline. However, keep track of your investments and ensure that you maintain your equity allocation at a level you are comfortable with.

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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