I am 32 and I have a daughter aged 6 months. My take-home salary is ₹61,000 per month. I live in my own house and ₹21,000 every month goes towards living expenses. Since November, I am investing ₹10,000 in a one-year RD account. I am also paying ₹7,000 every month towards a personal loan that I had taken earlier. My company provides insurance coverage. I am interested in investing a sum of ₹10,000 in mutual funds every month from a long-term perspective (at least 5 years). Please suggest some good funds.

Karthik Selvaraj

Usually, a minimum investment horizon of five to seven years is recommended for mutual fund investments to help reduce the risk of underperformance vis-à-vis their benchmark indices or the broader markets (Nifty 50/Sensex). But if you don’t have any particular need for the money five years hence, you can extend your investment horizon. That way, you can use this as a vehicle to save for long-term goals such as your child’s higher education or your retirement needs. You can step up the per month investments as your salary and investible surplus increases.

Put in ₹3,000 each in Birla Sun Life Frontline Equity and SBI Bluechip, both large-cap oriented funds. The remaining ₹4,000 can be divided equally between ICICI Pru Value Discovery (multi-cap) and HDFC Balanced. These choices will leave you with an allocation of 20 per cent towards lower risk equity-oriented balanced funds, 20 per cent towards higher risk multi-cap funds and 60 per cent towards moderate risk large-cap funds.

It is good that you are also balancing your portfolio by investing ₹10,000 every month in a debt instrument (recurring deposit) as well. Given that personal loans carry a relatively higher rate of interest than other loans, use any temporary surpluses such as a bonus or incentive to pay back more or close the loan earlier. As far as insurance goes, it is always better to take a term cover for your life and a health insurance cover for your family irrespective of what an employer may be providing. This is because the coverage may change to your disadvantage when you change jobs, or worse, you may end up without cover in case you decide to take a break in your career.

I am a 28-year-old banker. I have been investing over the last two years a total of ₹16,000 per month in various SIPs, as follows: Reliance Equity Opportunities - ₹4,000 ; Reliance Growth fund – ₹3,000 ; Reliance Banking - ₹1,000 ; Reliance Small Cap - ₹1,000 ; Reliance Pharma - ₹1,000 ; Reliance Top 200 fund - ₹1,000 ; Birla Sun Life Frontline Equity - ₹5,000. Is this a good portfolio keeping in mind I require ₹50 lakh in five years’ time and also need to save towards my retirement?

Nikhil

Considering a compounded annual return of 12-15 per cent, you will be able to generate only ₹21-24 lakh in seven years for the ₹16,000 that you are putting in. To reach the ₹50-lakh target, you will need to invest ₹34,800- 38,800 per month. If you do not have so much to spare every month, it is better to scale down your expectations.

This apart, your existing portfolio needs a relook. For one, about 65-70 per cent of your monthly investments go into one fund house — Reliance Mutual Fund. Diversifying across fund houses will help you gain from the different investment styles. Secondly, there are better performers than funds such as Reliance Equity Opportunities and Reliance Growth in their categories. Thirdly, although you might have added it to boost your returns, you can avoid sector funds such as Reliance Pharma and Banking considering that they have high concentration risk and that you have only five years left to meet your deadline. Small-cap stocks are also overheated currently and a corrective phase from hereon can’t be ruled out. Hence stop SIPs in all these funds.

Rejig your portfolio as follows: Continue with Birla Sun Life Frontline Equity (large-cap) and Reliance Top 200 (large-cap) and invest ₹3,000 in each. Divide the ₹10,000 equally among Mirae Emerging Bluechip (mid-cap), HDFC Midcap Opportunities (mid-cap), Franklin High Growth Companies (multi-cap) and SBI Magnum Multicap (multi-cap). For your retirement, you will need to build a separate portfolio when your investible surplus increases or when you have reached your intermediate-term goal five years hence.

Send your queries to mf@thehindu.co.in

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