The Hindu Business Line : Fund Talk

With interest rates beginning to trend downwards, you should consider locking into debt instruments or fixed deposits that offer a return of over 10 per cent for a longer time-frame.

I am a retired professional aged 59 years. My investments in mutual funds are given below. I have invested between Rs 15,000 and Rs 20,000 in each of the funds. Due to the present volatile market conditions most of the investments in MF are in red. Please suggest which funds need pruning/redemption. Should I increase my holdings in some of them? I have opted for growth option in all mutual fund schemes. My other investments are in PPF (for the last 15 years) and in fixed deposits of banks and non-banking finance companies. Funds: Birla Midcap, Birla Sun Life Equity, Birla Sun Life Liquid Plus, DSPBR Balanced, DSPBR T.I.G.E.R, DSPBR Top 100 Equity, DSPBR FMP Series-3 12 months, Fidelity Fixed Maturity Plan Series 1 Plan A, Franklin Templeton Fixed Horizon Series IX-Plan D, HDFC Prudence, HSBC Emerging Market, ICICI Prudential Infrastructure, IDFC Enterprise Equity, JM Contra, LICMF Liquid, Reliance Growth, Reliance Vision, SBI COMMA, SBI Contra, SBI Infrastructure, SBI Magnum Multiplier Plus’ 93, Sundaram Paribas CAPEX opportunities, Sundaram BNP Paribas Select Focus, Sundaram Select Midcap, Tata Infrastructure, UTI Short Term FMP; Series 1 -X (90 days), UTI Infrastructure Advantage Fund Series – 1.

S. S. Rajan

Bangalore

You have done well to hold some debt funds in your portfolio. While we do not have information on your exposure to individual funds, going by the Rs 15,000 to Rs 20,000 investments (stated by you) in each of the funds, your capital allocation to equity funds alone could be about 40-50 per cent of the total assets. Considering that you are retired and assuming that you are partly dependent on the above investments for income, you may have to reduce your exposure to equity. We would prefer a 25-30 per cent equity exposure which can later be pruned to 20 per cent, depending on your need and your risk appetite.

Portfolio pruning : You can hold on to Birla Sunlife Equity, DSPBR Top 100, Sundaram Select Midcap, and Magnum Contra. You can consider exiting Reliance Growth, if you are sitting on profits — you will receive similar mid-cap exposure in Select Midcap as well. Add HSBC Equity to the above funds and retain the two balanced funds; these can be your core holdings. ICICI Pru Infrastructure and Sundaram CAPEX Opportunities should suffice to provide the infrastructure and capital goods flavour. Consider exiting the rest of the funds. This need not be implemented overnight. First exit the ones on which you are sitting on profits and the rest in a phased manner.

Unfortunately you have two close-end funds in UTI Infrastructure Advantage and IDFC Enterprise Equity. In future, avoid such funds as they would not provide you the leeway to ‘exit on underperformance’.

While Magnum Comma may be a good diversifier the time of entry and exit matters most in commodity funds. All the gains in Magnum Comma have melted away as its return since launch stands at a measly 3 per cent. If you had invested in this fund within the last one year, the capital loss can be significant.

Hold on to the fund and exit on any rallies that may help mitigate your loss. The fund continues to hold bias in sectors such as metals and oil that appear to be on the downturn. However, holdings in oil marketing companies and chemicals may help. If you prefer a more passive diversifier as a substitute, consider investing in Gold ETFs.

Lock into interest rates : You have rightly invested in fixed maturity plans with a short duration, at a time when there was ambiguity in the direction of interest rates. However, now that it is fairly clear that interest rates are beginning to trend downwards, you should consider locking into debt instruments or fixed deposits that offer a return of over 10 per cent for a longer time-frame of two or three years.

In case of fixed maturity plans, be aware of the nature of instruments in to which the fund plans to invest and what their credit rating is. Retain the investment until maturity — as you are likely to receive reasonable yield only if you hold on till the maturity of the underlying instruments in which the fund has invested. Liquid and liquid plus funds are ideal for temporarily parking your funds before utilising for any planned purpose. They cannot be a fixed source of income.

If you are looking to receive regular income from your present debt portfolio, you would be better off investing them in fixed deposits of banks. Please note that your bank deposits and your savings account funds put together enjoy an insurance of Rs 1 lakh in each bank. You capital would, therefore, be guaranteed to this extent, in the event of any turbulence.

Further, as you have held your PPF for 15 years now, you can consider shifting the funds to deposits or post-office senior citizens’ scheme (you will qualify to invest in it when you turn 60). The latter would also provide tax relief by way of deduction under Section 80C of the Income Tax Act. This Section allows deduction on certain investments totalling to Rs 1 lakh every year.

VIDYA BALA

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