The Hindu Business Line : Fund Talk

If you have opted to spread your investments over several funds in order to diversify risks, four-five funds from different fund houses would be an optimal number. Top up your investments in the selected funds each year for tax benefits.

I have invested in tax saving funds from Birla, HDFC, Kotak, UTI, Fidelity, Reliance, Lotus and SBI jointly with my son. Apart from this, I hold Franklin Flexicap Fund, Templeton India Equity Income Fund, Franklin High Growth Fund and Tata Infrastructure Fund. I am 63 and receive sufficient pension to meet my living expenses. I would like to invest Rs 2,000 per month in tax saving funds and a similar sum in equity funds. Advise me if I should sell any of the above, and what I should buy?

R. M. Srivastava

Agra

Considering that you already have a large portfolio of equity funds, you should evaluate if you would like to step up your exposure to equity at this juncture. True, you are comfortably placed to meet your living expenses because you continue to receive a regular income stream and you don’t really depend on your investments to meet your expenses.

However, do evaluate if you would be really comfortable if the stock markets were to correct significantly, eroding the value of your portfolio by 15-20 per cent. This is a live possibility considering the speed and magnitude of the stock market rally over the past couple of years!

Assuming you have evaluated this risk and have factored it into your investment decisions, we would suggest you exit some of your existing funds and then replace them with new options. Your portfolio suggests that you have been investing in different tax saving funds each year, which is why you have a portfolio of about 15 different funds!

Not only will this diversity of funds make your portfolio difficult to track and manage, it also means more paperwork. If you have opted to spread your investments over several funds in order to diversify risks, four-five funds from different fund houses would be an optimal number. Top up your investments in the selected funds each year for tax benefits.

Now, to your portfolio. With most of your investments in tax saving funds, a substantial portion of it is locked in for three years.

From the dates you have mentioned in your query, the funds in your portfolio which have completed the 3-year lock in are Birla Equity Plan and HDFC Long term Advantage Fund.

Apart from these funds, the only other funds where you can book profits are your open end funds- Franklin Flexicap, Templeton India Equity Income and Tata Infrastructure Fund.

Though each of these funds do have a good track record and would not normally be “sell” candidates, these are the only options available to you now to book some profits on your portfolio. You could take profits on Tata Infrastructure fund, given that this is a theme fund and on HDFC Long term Advantage, in light of its sedate recent performance.

For your planned investments in tax saving funds, we suggest that you start SIPs in Birla Sun Life Tax Relief, and continue investing in HDFC Taxsaver through the SIP route.

Your other equity investments can be routed through Templeton India Equity Income Fund and HDFC Top 200 Fund.

We aren’t sure if your preference for tax saving funds is driven by your need for a tax shelter. If it is not, do keep in mind that investing a large proportion of your savings in closed end funds or funds with a lock in period, will limit your ability to withdraw money in case of an emergency, or a reversal in performance should stock markets witness a decline.

Aarati Krishnan

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