The Hindu Business Line : Fund Talk

I am 30 and I have started SIPs in the following funds two months ago: Birla SunLife Frontline Equity, DSPML Top 100 Equity, HDFC Top 200,HSBC Equity, Kotak 30, Magnum Contra, Franklin India Prima Plus, Sundaram BNP Paribas Entertainment Opportunities, Sundaram BNP Paribas Financial Services Opportunities, ICICI Prudential Focused Equity Retail. I have a long time horizon. I am saving for my son’s education and retirement. Please let me know if my portfolio is too conservative and if any of my funds are redundant. Also, can you recommend a good debt fund that I can add to my portfolio?

Sireesha

You can retain the funds in your current portfolio as most of them have a good track record. The portfolio does suit investors with a more conservative risk profile, as most of the funds have a large-cap bias. Over the long term, the current portfolio will deliver returns that are largely in line with the Sensex or the Nifty.

Assuming that it is a good 10 years or more before your son heads to college, you can expect an annualised return of about 15 per cent on your investments. If you expect higher returns, you will have to take more risk.

Ideally, you need to set a financial target before you construct your fund portfolio. Assess the sum you will need to fund your son’s college education x years from now, factoring in inflation. Look up financial calculators on the Web and determine how much you need to invest every month to meet that target. You might find that you have to either step up your investments or invest in more high-yielding stocks to reach that goal.

If you need to boost the return potential of your portfolio, consider adding more aggressive funds to your holdings. You could consider investing about 20-30 per cent of your money in mid-cap funds such as Reliance Growth and Sundaram BNP Paribas Select Midcap. Sector or theme funds can also be considered provided you understand the sector in question well and can time your entry and exit into these funds.

As far as debt options are concerned, you could invest in short-term/ultra short-term debt funds or money market funds. Short-term debt funds are superior options currently as, because of a tight liquidity environment, interest rates on short-term investment options are higher than that on long-term. Choose funds with a good pedigree and low expense ratio. HDFC Liquid Fund and Birla Sun Life Cash Plus appear to be good options.

I have invested in Reliance Diversified Power (D), ICICI Pru Infrastructure (D), Tata Infrastructure (G), SBI Magnum Contra (D), HSBC Equity fund, Reliance Growth (D) through SIPs over the past year. I have also invested in Sundaram Select Focus and Sundaram Select Midcap. I have invested in tax saving funds such as Principal Personal Tax saver, SBI Advantage Tax Fund (NFO) and Birla Sun Life Tax Relief 96. I would like to invest in another 2-3 mutual through SIP. I also have about Rs 50,000 to invest at once. I have to invest in ELSS also. Kindly suggest some more funds. I am ready to stay invested for another three years. Shall I exit infrastructure funds?

Anand Rao

There is nothing amiss with your fund choices. Chances are that your portfolio has not delivered much yet, given the poor performance of the market over a one year period. You need to stay patient and remain invested. Continue your SIPs. Avoid lump-sum investments as the markets are likely to remain volatile. You can consider investing lump-sum amounts during sharp dips.

The infrastructure funds you hold happen to have withstood the volatility in the market better than others in their category. Nevertheless, the performance of infrastructure funds during the correction has re-affirmed our view that theme funds should not form more than 15-20 per cent of your portfolio.

Retain Reliance Diversified Power in light of its strong track record. However, further investments can be considered in diversified funds, as stock selection is likely to have a more important bearing on returns than sector bets. Apart from HSBC Equity and Sundaram Select Focus, you can consider investments in DSPML Top 100 Equity and Birla Sun Life Frontline Equity. For tax-saving purposes, you can consider adding Magnum Tax Gain or Sundaram Tax Saver to your portfolio. Do avoid new fund offers as there are enough funds with a good track record in this category.

SHANTHI VENKATARAMAN

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