The Hindu Business Line : Fund Talk

I am 37 years and my investment time horizon is 15 years and above. I don’t need any additional income through my investments now. I have invested in the following funds.

Core Funds: Large Cap Funds(41 per cent)- Reliance Vision, Magnum Contra, Birla Sun Life Equity.

Mid-Cap Funds (33 per cent): Sundaram Select Mid-Cap, Reliance Growth

Non-Core (26 per cent): ICICI Prudential Infrastructure Fund, UTI Infrastructure and Sundaram Energy Opportunities (NFO).My ideal asset allocation would be 50 per cent in large-cap, 30 per cent in mid-cap, 10 per cent in small-cap and 10 per cent in sector funds. I am investing through SIPs in all the above funds except for the close ended fund. Is my asset allocation on a right track? Do I need a debt fund to be part of my portfolio? If so, please suggest few criteria to evaluate debt funds. I would like to keep my investments and my insurance separate but I recently saw advertisements on ‘SIP + Insure’; do you think it would be a good idea to enrol in this? I would like to invest in real estate through REITs. Could you please suggest few REIT funds?

V. Bala

Your choice of funds and the attempt to classify them as core and non-core segments deserve appreciation. Considering your age and assuming that you have a reasonable risk appetite your portfolio appears to be on the right track. Before we move on to your other questions we would like to re-jig your portfolio to suit the asset allocation that you seek to achieve.

The funds that you have classified as ‘large-caps’, are not necessarily funds with a large-cap portfolio. They are diversified equity funds with some exposure to mid-cap stocks as well. For instance, Reliance Vision as well as Birla Sunlife Equity have a good 25-30 per cent exposure to mid-caps and emerging large-caps. Magnum Contra however retains its bias for large-cap stocks. While these are good picks, HSBC Equity and Kotak 30 may be better choices if you particularly wish to hold large-cap funds. Reduce future SIPs in Birla Sunlife Equity and Reliance Vision and start SIPs in the above suggested funds.

Continue your investments in Reliance Growth and Sundaram Select Midcap. However, please bear in mind that the former with a massive asset size may increasingly find it difficult to take exposure to smaller companies. Hence, assess the portfolio occasionally to know if the fund still fits the ‘midcap’ bill.

Our definition of a core portfolio would be diversified funds with a solid track record. Hence all the above would fit the bill.

ICICI Pru Infrastructure should provide you with the needed exposure to the infrastructure and engineering story in India. But book profits regularly and deploy the funds in diversified funds. You can consider exiting UTI Infrastructure.

You will have to hold on to Sundaram Energy Opportunities (being close ended) and regularly monitor performance. Use the exit option if the fund’s performance is not inspiring even after 2 years. We would prefer the open-ended route to sector funds as they call for active profit booking.

While your 15-year time horizon provides lot of comfort, you have to resort to active profit booking and deploy it in safer avenues in debt as you near your target date. Hence review the performance of the funds that you are investing in and do not hesitate to exit the average ones.

Also convert the excess ‘paper profit’ you may be sitting on and re-invest such amounts in fixed deposits of banks or your PPF account, if you already hold one.

Debt exposure: It is essential to hedge your equity exposure with some debt component. This need not necessarily come through the fund route. They could be deposits or post office schemes. Inflation and interest rate cycle would be key factors to look out for in debt products.

In a rising interest rate scenario, locking into short term debt would enable a quick shift to better rates as and when they increase. Currently a number of fixed deposits offer as much as 10 per cent for 1 year. In the mutual fund bouquet, fixed maturity plans (FMPs) offer indicative yields of about 11 per cent. You can currently consider such investments with tenure of less than a year.

SIP and Insurance: Mutual funds SIPs with an insurance cover come with restrictions. There is either a cap on the amount of risk cover or a floor for tenure of investment.

There are also exit loads if you stop the SIPs before the said tenure. Hence, these products may not suffice for a regular life cover. Have a regular term insurance with an adequate cover. Instead, if you have fixed financial goals and are investing to achieve the same, you can consider these products as an insurance cover against the said financial goals.

There are no REIT products in India at present. You may have to wait. However, if you are a particular on investing in real estate, and are a High Networth Individual with an investment amount of at least Rs 25-50 lakh, you can consider investing in realty (venture capital) funds.

VIDYA BALA

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