Set your own target returns and book profits religiously. In case of any unusual rallies such as the present one, you can consider quickly cashing out without waiting for more gains.

I am 43 years old and my husband is 49. We have a medium-to-high risk appetite. Both of us will retire in 10 years. With an intention of creating a retirement corpus (May 2019), and save for the marriage and higher education of our daughter (timeframe being another 6-8 years) we started investing in mutual funds from April 2006. One lot was invested between April 2006 and January 2008 with entry-load when the index was ranging from 16000-21000. Direct investments in funds without entry-load was made from February 2008. The investments were in small lump-sums in a staggered manner.

We expect an average annual return of 15-20 per cent. Which of the schemes (attached) should we continue/discontinue or redeem and when? Is it necessary to redeem some units every year, for booking profit and reinvesting the proceeds in other better performing schemes?

We propose to invest in funds from the maturity proceeds of our monthly income scheme, to earn monthly dividend/interest of Rs 4,000 for payment of monthly society maintenance and annual property tax. Please suggest schemes.

T. Arundhatee, Pune

Asset allocation: You have spread your funds well across varied asset classes — debt, equity and real estate. However, given that you have only 10 more years to retire and a lesser period to achieve a corpus for your daughter, your portfolio may require some shuffling.

While your real estate exposure of about 30 per cent appears fine, reduce your equity holding to 25-30 per cent (from 37 per cent at present) and hike debt to 40-45 per cent. For your daughter's requirement, start moving from equity to debt at least three years before the goal. For your retirement kitty, gradually shift to debt five years ahead of the retirement.

Why is this important? The stock market rout of 2008 may still be fresh in your memory. You may not be happy to know that diversified equity funds as a category returned a measly 9.5 per cent annually on an average over the last three years (roughly over the time you were invested)! That's what a year of decline can do to your portfolio; reason why you should exit when the going is good, especially since you do not have a very long timeframe to achieve your objective.

You average annual return of 15-20 per cent does look ambitious at this point in time. It can be achieved only by the top funds. Given the massive diversification (over 50 funds) in your fund portfolio, the performance of the toppers is likely to be pulled down by the mediocre ones. Our key suggestion to you would be to restrict your mutual fund portfolio to about 15-20 funds, though that too is a tad on the higher side. Note that it would still be a Herculean task to track the performance of these funds and exit/book profits periodically.

Compact portfolio: While we shall suggest funds that you can retain/accumulate, note that you may have to gradually exit from the rest, based on their lock-in or SIP period. In future, do not commit funds towards SIPs for more than a year. Restricting the investment horizon to a year will allow you to review performance and stop SIPs if the need arises. You can always consider renewing them if the performance continues to be good.

Hold the following as your core funds and continue your SIPs, with a periodic review of their performance: HDFC Top 200, DSP BR Equity, Magnum Contra, Birla Sun Life Midcap, Sundaram Select Midcap, Reliance Diversified Power Sector and HDFC Prudence.

Add Quantum Long Term Equity, UTI Mahila Unit Scheme and FT India Life Stage FoF 50s Plus to this lot. Invest in lumpsums in midcap funds and power funds on market corrections of 10 per cent or more. Use SIP for the rest. Ensure that you invest 70 per cent of your mutual fund allocation in these funds.

The rest can be invested in the following: Templeton India Equity Income, ICICI Pru Infrastructure, HDFC Equity, Templeton India Growth, DSP BR Small and Midcap, Reliance MIP, IDFC Premier Equity and HDFC MIP Long Term. Invest through SIPs in the ETFs of Nifty and Gold and in the index fund of CNX 500 offered by Benchmark Mutual.

Note that we have pruned your portfolio to avoid duplication in some cases and weed out underperformers in others. The idea is to create a diversified yet compact portfolio. Set your own target returns and book profits religiously. In case of any unusual rallies such as the present one, you can consider quickly cashing out without waiting for more gains. Such rallies would provide you sufficient returns to meet your goals.

No guaranteed returns: It is not a very wise idea to invest in mutual funds from post office schemes for getting monthly returns. No fund will guarantee monthly dividends, not even MIPs. Besides, you can even lose capital. Reinvest a part of the sum in post office and set aside some amount to be invested in fixed deposits of banks and creditworthy corporates. Interest rates can be expected to go up this year; you can consider a deposit with a return of 9 per cent and above.


(This article was published in the Business Line print edition dated January 17, 2010)
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