Mutual Funds

Avoid sector funds for long-term goals

K Venkatasubramanian | Updated on March 30, 2014


These schemes, where entry and exit must be well-timed, may be risky.

I am 31 and have just started investing in mutual funds through the SIP (systematic investment plan) mode.

I have been investing ₹2,000 each in IDFC Premier Equity, Tata Balanced, Birla Sun Life Frontline Equity, ICICI Pru Focused Bluechip Equity and HDFC Balanced. I wish to invest an additional ₹5,000 every month. Can I invest in banking funds as these may rally post elections as the economy may get a boost?

- Vivek Kumar Upadhyay

You have done the right thing by investing in mutual funds through the SIP route, though the choice of schemes and allocations may be tweaked to suit your needs.

Two balanced funds are unnecessary, especially if you are investing for the long term. Stop SIPs in Tata Balanced as you already hold an excellent hybrid scheme in HDFC Balanced.

If you are going to invest ₹15,000 (including the additional ₹5,000) every month, your portfolio ideally ought not to have more than four-five funds.

With more funds, it will become too thinly spread and create overlaps in holdings.

Invest ₹4,000 each in Birla Sun Life Frontline Equity, ICICI Pru Focused Bluechip and IDFC Premier Equity. Park the remaining ₹3,000 in HDFC Balanced.

Coming to the second part of your question, you’re right, banking as a sector may rebound significantly if the economy recovers strongly.

But, as with other sector funds, betting on banking schemes may be risky and require timing of entry and exit, which may be quite challenging.

Besides, the diversified funds that you hold will themselves, in all likelihood, increase exposure to banking stocks, if they foresee any potential for a substantial rally. Keep track of all the funds in your portfolio and review their performance once every year.

Exit prolonged underperformers in your portfolio and rebalance as and when necessary.

I am an NRI based in Dubai. I have a daughter who is almost four years old.

I want to build a corpus for her education and career.

I wish to invest some money in mutual funds via the SIP route or any other financial instruments over 15 years to accumulate ₹15-20 lakh by the time she turns 18.

Could you suggest the best investment options?

- Melwyn

Saving for your daughter’s education when she is barely four will help you achieve your goal comfortably without taking too many risks.

Equity mutual funds are indeed good products to achieve meaningful capital appreciation that would beat inflation over the long term. You have not stated how much you can set aside every month.

If you can invest ₹5,000 monthly for 14 years and the annual returns are 11 per cent, you would be able to accumulate ₹20 lakh. You can invest in funds of relatively moderate risk to achieve your target.

Park ₹3,000 in ICICI Pru Focused Bluechip and ₹2,000 in HDFC Children’s Gift Fund – Investment Plan.

This would give you exposure to a large-cap and a balanced fund. Both schemes have excellent long-term track records.

Published on March 30, 2014

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