The Hindu Business Line : Fund Talk

I’m a 31-year-old salaried person. I have the following investments: Birla Sunlife Tax Relief 96, DSPML T.I.G.E.R, Franklin India Flexicap, Franklin Opportunities, ICICI Pru Dynamic, Kotak Tax Saver, Magnum Taxgain, Reliance Growth, Reliance Vision, Sundaram BNP Paribas Select Midcap Lotus India AGILE and Reliance Diversified Power. I can spare Rs 4,000 a month for at least a year from now on. Please advise me on how to prune my current portfolio. I’m not going to need money from these investments for at least 15 years. Do clarify if I’m investing enough for my three-year-old daughter’s education, marriage, and for my pension, maybe 20 years from now.

Prakassh I V

Your portfolio has been fairly well chosen with a good number of them portraying a strong track record. However, you could do with some more core funds that have weathered various market phases. This may require pruning the existing portfolio and switching to other funds.

You have been investing since 2006 and appear to have added a number of funds bringing the total to about 12. We believe that the number of funds you hold is high given the present size of your corpus. About 6-8 funds should suffice. Your initial corpus has 40 per cent invested in tax saving funds. While these funds do offer tax deductions, they have been under performing regular diversified equity funds by a huge margin and cannot form the core of any portfolio. In other words, tax savings funds are not the best investment options in the mutual fund universe at present. While you will have to hold these until the three-year lock in, book profits to trim the same later. Do also consider other debt options, such as fixed deposits and provident fund, that would protect capital.

The flexicap and opportunity funds that you hold in Franklin Templeton, although diversified, have a high-risk, high-return profile. This can be gauged from the volatility in their return patterns. They cannot, hence, fall under the core funds category. Hold Reliance Vision and add DSPML Top 100 Equity and add Magnum Contra. These can form your core portfolio with 50-60 per cent of your assets invested in them.

Exit Franklin Flexicap and ICICI Pru Dynamic as you have made some profits. Hold Franklin Opportunities as the fund has earlier demonstrated its ability to quickly bounce back on market revivals. However, hold this fund as one of your non-core funds — mainly to pep up overall returns. Exit Sundaram BNP Paribas Midcap and hold Reliance Growth. Ensure these funds are not more than 15 per cent of your portfolio. The latter would provide you with sufficient midcap exposure.

The theme funds that you hold — DSPML T.I.G.E.R and Reliance Diversified Power — are expected to capitalise on the boom in infrastructure and capital goods. Hold them but frequently book profits, especially in the latter, to maintain exposure to about 15 per cent of your assets.

Lotus A.G.I.L.E is a new fund and aims at investing in large-caps. However, your core funds are likely to provide sufficient exposure to this segment. Hence consider exiting this fund.

Start an SIP in Magnum Contra and DSPML Top 100 Equity. Consider investing more in the other core funds as and when you sell or book profits in the funds mentioned by us. But please note than an SIP works only when you invest over a period of at least three years where you provide time to average cost. You will, hence, have to extend your disciplined monthly savings beyond the one-year period you have mentioned.

You will have to decide whether you are saving enough based on your own expenditure pattern and how much you need as pension when you retire. You can use any of the financial calculators on the Internet to know what would be the amount you will need 20 years from now to meet your monthly expenses then. You should assume a realistic inflation (as the value of goods that you buy today will be much more 20 years hence) and a reasonable return that your investment in equity would earn (say 12-15 per cent compounded annually over the next 15-20 years), while calculating your retirement needs.

This is so for your daughter’s education too. For instance, if one needs Rs 5 lakh for a professional course today, assuming an inflation rate of about 5 per cent, the same would cost over Rs 10 lakh after 15 years.

Further, it is preferable to maintain a separate corpus for your retirement and daughter’s education. You can start off with two funds, HDFC Top 200 and Reliance Vision, for your daughter’s portfolio with the Rs 4000 per month that you can currently spare. Add HDFC Prudence and Magnum Contra when you have a higher disposable income.

VIDYA BALA

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