The Hindu Business Line : Fund Talk

For the benefit of my grandchildren, I propose to invest Rs 1,000 per month for five years in each of these schemes: HDFC Equity, HDFC Top 200, Franklin Prima Plus, Templeton India Equity Income Fund, DSP ML Equity Fund and Opportunities Fund, Birla Sun Life Equity or Birla Frontline Equity Fund. Your advice on the choice of schemes is solicited.

P. S. Raman

Hyderabad

All of the funds that you have mentioned may suit your portfolio reasonably well. We can see that you have selected most of these funds based on their long-term track record. However, we suggest that you whittle down your shortlist of funds even further and, if necessary, invest larger sums in each fund. This will make your portfolio easier to handle (there will be less paperwork) and much easier to monitor.

You need not worry that holding fewer funds will significantly increase the risk you are assuming. In any case, since you are already investing in diversified equity funds, each fund will carry exposures at least to 6-7 sectors and over 25 stocks. Put together, even four to five funds will offer sufficient diversification benefits to shield your portfolio from poor performance in one sector or stock. With these factors in mind, we would like to suggest the following:

It is clear that you are a long-term investor, who would not like to make frequent changes to your portfolio. Under the circumstances, it may be best to stick to funds that can invest in stocks from across the market capitalization range (both mid and large caps), so that you wouldn't have to make decisions to choose between mid-cap or large cap funds. Funds such as HDFC Equity and DSP ML Equity would be good choices in this respect.

Since it may be best to own just 4-5 funds, try and draw your funds from different fund houses. This way, your investments will be less exposed to the risk of a change in ownership or fund manager.

Based on their track record over the past five years and your own risk preferences, we would suggest HDFC Equity Fund, DSP ML Equity (DSP Opportunities is a more aggressive and thus, more risky option), Birla Sun Life Frontline Equity and Templeton India Equity Income for your portfolio.

The last fund does not possess a long track record. But given its mandate of overseas investing with a value bias, it may be a good option to diversify your portfolio, which will otherwise be invested mainly in domestic growth stocks.

Since you have identified only equity funds, we hope that you have factored in the risks that such funds carry.

All equity funds do carry the risk of capital erosion, given that the returns will be determined by how the stock markets perform over your holding period.

Since your investments in these funds will be spread out over a five-year period, do prepare for a 7-10 year investment horizon to reap the full rewards of your investment.

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

Aarati Krishnan

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