The Hindu Business Line : Fund Talk

I am 25 years old and am investing Rs 1,000 per month in HDFC TaxSaver, and Rs 500 each in SBI Magnum Taxgain and Franklin India Prima. I am an aggressive investor and want to continue investing this amount for 15 years. Please tell me if these schemes are worth holding for so many years? Should I opt out from these schemes and consider investing in some others? Would it help me in creating wealth by holding for 15 years. Is the amount invested sufficient to build up good wealth?

Shailesh Langalia

You have made a good start with funds that possess an excellent track record. The tax-saving funds you hold had a mid-cap tilt in their initial years but recently adopted a large-cap bias to suit market conditions. In HDFC TaxSaver, for instance, 80 per cent of the funds are invested in stocks with a market cap of over Rs 2,000 crore. Hence, they may not at present fit into the aggressive category. Franklin India Prima, although a mid-cap fund, is more suitable for conservative investors as it mostly refrains from investing in small-caps. All the above funds have however, done consistently well and can form the core of any portfolio.

If you do have more investible surplus, you could consider Magnum Contra and DSPML Opportunities to make a portfolio of five core funds. Invest through the systematic investment plan.

Given that you are an aggressive investor, if you are willing to actively track the market, you can consider some sector or theme funds in addition to your core portfolio. Franklin Infotech may be a good option at this point in time. It allows you to take exposure to some of the top IT stocks at one go. DSPML T.I.G.E.R is another theme fund that invests with a thrust on infrastructure and engineering. But its track record is just over two years and it can, at best, be termed a `dark-horse play'.

Unlike other diversified funds, timing your entry and exit is crucial for thematic and sector funds. You should invest in these funds only if you believe there is a potential for the specific sector or theme. Also, note that such funds should not form more than 5-10 per cent of your equity portfolio.

If you feel sector funds are not for you, but still prefer a dash of risk, Sundaram Select Midcap may be a good option. It has an aggressive management style and falls under the high-risk, high-return category. You should, however, watch out for consistency in performance.

Your time horizon of 15 years will help even out market ups and downs and aid wealth creation. One of our preferred picks, HDFC Equity, for instance, has returned 25 per cent compounded annually, since its inception in 1994. This does not mean you can invest and adopt a passive `hold' strategy for 15 years. It is imperative to track the fund's returns, management style and adherence to objectives, and weed out non-performers based on the above factors and your own changing risk appetite and financial goals over the years.

Whether your investment is sufficient to build "good wealth" would depend on your financial goals and the level of funds you can set aside for investments. Rs 1,000 invested every month for the next 15 years, assuming a 12 per cent annual return, will build about Rs 5 lakh. Similarly, if you have a financial goal or commitment of Rs 10 lakh, 15 years from now, then you may need to save about Rs 2,200 per month, given a 12 per cent return.

While there is no guarantee that equity funds would deliver such returns, well-established funds have done so in the past. It would be prudent to have a combination of debt (such as PPF, NSC or fixed deposits) and equity. This will help balance your portfolio and hedge risk.

Vidya Bala

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