Build a balanced portfolio

I am 25 and have been investing in mutual funds for the last two years through monthly SIPs. My current allocation of Mutual Fund SIP investments is follows:

ICICI Prudential Focused Bluechip Equity - Rs 2,500; HDFC Top 200 - Rs 1,500; UTI Opportunities - Rs 1,500; IDFC Premier Equity Plan A - Rs 2,000; SBI Magnum Emerging Businesses - Rs 2,000; UTI MNC - Rs 1,500; BSL Dynamic Bond – Rs 1,000; Reliance Gold Savings - Rs 1,000; HDFC Balanced – Rs 1,000

I have also been investing a small chunk of my savings in Equities. I wish to retire at 45.

Please suggest how to go about with allocations so as to generate decent and steady returns, given the 20 year time-frame I have set for myself.

Prateek

You have done a wonderful thing by starting off very early towards securing your future financially.

With a period of 20 years, you have also given yourself a sufficiently long timeframe to achieve significant capital appreciation.

Before we go on to your portfolio, a few important points need to be highlighted about building a large corpus.

You must, first of all, construct a balanced portfolio, with investments in equity (including mutual funds), debt, gold and real-estate.

The proportion that you would allocate to each of those asset classes would depend on your age, risk-appetite, disposable income and investment horizon.

Ideally at your age, you must invest 70 per cent of your portfolio in equity (including mutual funds), 15 per cent in debt, 10 per cent in real-estate and the rest in gold. Consider debt options such as PPF, NSC and bank FDs/RDs.

As you grow older and your risk appetite, disposable income and commitments change, you must reduce on equity and increase exposure to other asset classes.

If you invest Rs 14,000 a month for 20 years, you would be able to accumulate Rs 2 crore, if the returns are 15 per cent per annum.

Coming specifically to your portfolio, all the funds are of fairly high calibre. But there is considerable overlap and there are also too many funds for the Rs 14,000 that you are investing.

You can switch from UTI MNC to UTI Opportunities, the former being a theme fund and therefore a tad risky. Invest Rs 3,000 in UTI Opportunities.

Invest Rs 4,000 in ICICI Pru Focussed Bluechip Equity, a solid large-cap fund. Since you already have a large-cap fund, you can exit HDFC Top 200, which is a fund with an excellent long-term track record.

Invest Rs 3,000 in IDFC Premier Equity, a mid-cap fund with an exceptional track record and exit SBI Emerging Business.Invest Rs 3,000 in HDFC Balanced fund and Rs 1,000 in Reliance Gold Savings.

You may not need a bond fund, you would be better off with equity given your long investment horizon.

Review your funds periodically and take corrective action. Book profits in case of any abnormal rally.

If you reach your targeted corpus ahead of time, sell the funds and move the proceeds to safer debt options or bond funds.

*** I am 35. My target is accumulating Rs 1 crore in 10 years. I plan to invest around Rs 20,000 a month through SIPs in the following funds: Birla Sun Life Dividend Yield Plus, Franklin India Blue Chip, HDFC Equity, ICICI Prudential Discovery, IDFC Premier Equity, Quantum Long Term Equity, UTI Opportunities, GS Gold BeES, ICICI Prudential FMCG – Growth and SBI Gold Exchange Traded Scheme. Please let me know if these funds are good and also the proportion that I must invest in each of these.

Prashanth It may be quite challenging for you to accumulate Rs 1 crore in 10 years by investing Rs 20,000 a month as that would require returns of nearly 25 per cent annually. This would be quite an optimistic returns expectation. You can realistically hope to accumulate Rs 55-60 lakh in 10 years, by investing Rs 20,000 a month.

Most of the funds you have chosen have fairly good track records. But there are a couple of points that you need to note before deciding on a shortlist.

There is considerable overlap in many of the funds that you have selected and hence you may not require all of them. Second, 10 funds are far too many to be investing in as monitoring their performance would be difficult and would also spread your portfolio too thin across too many schemes.

You can exit ICICI Pru FMCG as theme funds are quite risky and require considerable tracking in terms of entry and exit. You require only one gold ETF. Invest Rs 2,000 in GS Gold BeEs and avoid SBI Gold ETF.

Invest Rs 4,000 each in Quantum Long Term Equity, HDFC Equity and UTI Opportunities. All three are multi-cap funds though they are heavily tilted towards large-cap stocks. Invest Rs 3,000 each in mid-cap funds IDFC Premier Equity and ICICI Pru Discovery.

You can avoid Franklin India Bluechip as you would already have funds that have invested in large-caps. Birla Sun Life Dividend Yield Plus can also be given a miss as the fund is mid-cap oriented.

Both these funds have good track records and our suggestion not to take exposure to these is based solely on portfolio and mandate overlap as well as marginally better performance that the other schemes that we have suggested have registered.

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