Fund Talk: Diversify across fund houses

I have been investing monthly in Birla Sunlife Dividend Yield Plus for the past one year. Is it a good fund to keep investing in with a long-term horizon?— Chinmay Desai

Birla Sun Life Dividend Yield Plus has had a good track record over the past three to four years. You can retain it for five to seven years. But we hope you are investing in a basket of funds with a diversified investment strategy and not in this scheme alone.

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I am 71 and draw a pension of Rs 33,300 a month. I am also employed as an advisor on a contract that may be subject to renewal. Medical expenses are fully reimbursed by the Government. I save Rs 1 lakh in PPF annually to save tax and invest a similar amount in mutual funds.

A sizeable amount is kept in the savings account for any exigency. We own a home and a flat and have no financial commitments. The savings from consultancy and the rent from the flat are parked in term deposits.

From April 2011, I started SIPs of Rs 3,500 in HDFC Top 200, Rs 3,000 in HDFC Equity and Rs 2,500 in HDFC Prudence. Since these funds have not delivered significant returns in the last year-and-a-half, I want to stop these SIPs without withdrawing the amount. Now instead, I want to start monthly SIPs of Rs 2,000 in HDFC Top 200, Rs 3,000 in Quantum Long Term Equity, Rs 2,500 in HDFC Balanced and Rs 2,500 in mid- and small-cap space in IDFC Premium Equity and ICICI Pru Discovery. Will it be appropriate to switch to these funds?— Bhanwar Singh Rana

It is heartening to note that you are taking interest in investing at your age. Before we go on to your fund portfolio, a couple of points with reference to your debt holdings need to be highlighted.

First, with regard to PPF, we hope that you are aware that it is a product with a 15-year maturity period and requires you to invest some sum every year. This is far too long a holding period, given your age, unless the PPF is nearing its maturity.

Instead, consider locking into five-year NSC, which may be relatively less tax-efficient but is still a good debt instrument. You can also consider five-year bank deposits. Just pay the minimum sum (Rs 500) in PPF to keep the account alive.

Going by your fund exposure and keenness to invest in mid-cap funds, you seem to have a very high risk appetite. Although you have sufficient savings to cover emergencies and full medical cover, you may still need to temper your exposure to equity funds to 20-25 per cent of your pension; it is now at over 30 per cent.

Coming to the schemes that you hold, all three are from the HDFC stable. Choosing funds from the same asset management company may deprive you of the opportunity to diversify across different investing styles. Of course, all the three funds that you hold have an excellent track record of more than a decade in delivering returns. A year-and-a-half is too short a period to write off these funds, especially as the markets have themselves headed nowhere in the past couple of years.

HDFC Top 200 and HDFC Equity have significant overlap. You can invest Rs 3,000 each in HDFC Equity and HDFC Balanced. You can park Rs 2,000 each in Quantum Long Term Equity and IDFC Premier Equity. Two mid-cap funds may make your portfolio a tad risky and hence we have suggested only one.

HDFC Balanced has fared better than HDFC Prudence over the past few years as the latter takes exposure to mid-cap stocks, which may not have clicked. So you can stop SIPs in HDFC Prudence and HDFC Top 200 primarily to reduce your exposure to a single fund house.

Queries may be e-mailed to >mf@thehindu.co.in.

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