The Hindu Business Line : Fund Talk

I have invested lumpsum in Fidelity Equity (DP), Pru ICICI Infrastructure(G), Pru ICICI Tax Plan(DR), HDFC Tax Saver(DR), Principal Tax Savings(G), Magnum Tax Gain(DP). I also have SIPs in Pru ICICI Emerging Star, Magnum Contra, FT Flexicap and Magnum Tax Gain . I am a long-term investor and would like to have a portfolio of 10 funds.

Can you suggest funds in all categories for my core portfolio with moderate risks? Is dividend reinvestment option in ELSS worthwhile or will it get locked? Can you also suggest some funds which can withstand volatility, like the recent crash? How to choose between Growth and Dividend ?

Rohan. R

As a long-term investor you need to build a strong portfolio of funds that provide wealth accretion over time. The funds need not always be top performers. More importantly, they should have demonstrated consistency and outperformed its benchmark and peers over a 3-5 year period.

Prune ELSS holdings: Tax-saving funds are not the optimal choices for building a long-term portfolio. Consider exiting HDFC TaxSaver and Pru ICICI Tax Plan after the three-year lock-in. Continue with Principal Tax Savings and Magnum Taxgain . Here, again, monitor your SIP in Magnum Taxgain to ensure that not more than 10-15 per cent of your equity fund portfolio is exposed to ELSS. Consider investing in debt options options to ensure that you do not end up losing capital in gaining tax deductions. Yes, dividend reinvestment option in ELSS will end up locking every reinvestment for another three years. Opt for dividend pay-out for ELSS funds.

Build core portfolio: Add Birla Sunlife Equity, Kotak 30, DSPML Opportunities and Sundaram BNP Paribas Select Midcap to your long-term portfolio. Continue your SIP in Magnum Contra. This will provide you with different styles of investments across several categories, as requested by you. Ensure that these funds form 60-70 per cent of your equity portfolio. You may retain Fidelity Equity and ICICI Pru Infrastructure. The former has a relatively short track record and requires periodical monitoring of performance. ICICI Pru Infrastructure is a theme fund and warrants tracking sector performance. Retain the fund but book profits occasionally after setting a target return. You can exit ICICI Pru Emerging STAR, as the fund’s return has not compensated for the risks taken. You will have access to midcaps through Sundaram Select Midcap. You have requested for funds that can handle market volatility. As an investor in equity you have to be prepared to stomach some volatility and consequent blips in short-term returns.

Funds with concentrated exposure to few stocks, those with higher allocation to mid- and small-cap stocks and funds invested in sectors that have seen sharp rallies tend to be the ones that take sharper hits during broad market corrections. Hence, exposures to such funds have to be capped if you cannot stomach high risks. While there are value funds in our market that aim to reduce downside risks, they have not so far shown much resistance in the event of corrections; they also tend to consistently under-perform the diversified funds category at other times. Such funds are more likely to drag portfolio returns, especially when the investment horizon is long-term. The funds suggested for your core portfolio have also been hit by market corrections. However, they have amply established their ability to make a come back and even out such periods of glitches through superior returns over a long term . Agreed, that poor market timing may see you lose even 60-70 per cent of the capital invested. This is precisely why you need to invest through the SIP route. This will not only prevent you from investing during market peak but also enable you to average costs during market declines.

Growth or dividend: Growth or dividend reinvestment option is an efficient way to build a long-term portfolio as your returns are compounded. It also saves you the hassle of effectively ploughing back every rupee of dividend you receive into the investment stream again. Consider using the growth option for core funds. Opt for dividend payout in case of ELSS, theme funds or schemes with higher risks so as to book profits occasionally given your moderate risk appetite.

VIDYA BALA

More Stories on : Mutual Funds | Mutual Funds

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page