I have been investing in Canara Robeco Equity Diversified (Rs 3,000) and IDFC Premier Equity (Rs 2,000) through SIP mode from August 2010. I have retired from service and this Rs 5000 that I invest is a surplus amount. But I am disappointed with the performance of these schemes. Should I exit these funds now or should I continue investing for another two-three years?

Ranganathan

It is interesting to note that even after retirement you are investing in equity, through the mutual fund route.

The funds that you have chosen have very good long-term track record. The markets themselves have been quite choppy for the past three years, and given this volatility, both the schemes have done reasonably well. You must invest in equity funds for a period of 7-10 years, if not more, so that you are able to generate meaningful inflation-beating returns.

But there is another important question that you must ask yourself. Having retired, are you comfortable taking the risks associated with multi-cap and mid-cap funds, even though the amount that you are investing is only a surplus?

Retain both Canara Robeco Equity Diversified as well as IDFC Premier Equity, if you have the appetite for volatility.

If you receive a pension and have made sufficient investments in fixed instruments to cover you for the future, you can consider investments in equity funds. If not, deploy this surplus in safe avenues so that it covers any future increase in cost of living.

If you want a less-risky portfolio, consider balanced and large-cap funds. You can perhaps look at Tata Balanced and ICICI Pru Focused Bluechip Equity.

*** I am 28 years old and work for a private sector bank. I earn Rs 50,000 per month. I have been investing Rs 8,000 in the following mutual funds via the SIP mode since February 2013: HDFC Equity - Rs 3,000, Reliance Regular Savings Equity - Rs 3,000 and SBI Emerging Businesses - Rs 2,000.

I have also been investing in a recurring deposit of Rs 15,000 per month. I can invest another Rs 5,000 per month. Which schemes should I go for? My risk appetite is medium to high and my investment horizon is 10 years. Please let me know if my current portfolio needs to be reorganised.

Padmanabha Hedge

By investing in equity funds with a time horizon of 10 years, you have given yourself a good chance to accumulate a healthy corpus. Your saving and investment rate is also quite impressive.

But given that you have a reasonable risk appetite, you can consider reducing the allocation to the recurring deposit.

Of the Rs 15,000, invest Rs 6,500 in the recurring deposit. Open a PPF account and invest Rs 6,500 in it. This would give you tax benefits and reasonably attractive returns. Invest the balance Rs 2,000 in equity funds, along with the Rs 8,000 that you already put in such schemes. That will raise your monthly equity fund investments to Rs 10,000.

Coming to your mutual fund portfolio, HDFC Equity has an excellent long-term track record, but has fallen behind in the past couple of years. Reliance Regular Savings Equity has been an average performer. SBI Emerging Businesses has delivered quite well over the past three years, but has a slightly risky portfolio.

You can retain all the three funds, but avoid further investments in these schemes.

Instead, split Rs 10,000 as follows: Invest Rs 3,000 each in ICICI Pru Focused Bluechip Equity and Quantum Long Term Equity. Park Rs 2,000 each in IDFC Premier Equity and Tata Balanced. Remain invested for the long term in these funds. If you want to invest another Rs 5,000, you can consider parking Rs 3,000 in Birla Sun Life Frontline Equity. The balance Rs 2,000 can be split equally between ICICI Pru Focused Bluechip Equity and Quantum Long Term Equity.

Monitor the schemes in your portfolio and review their performance once every year and remove prolonged underperformers.

*** I would like to invest Rs 10,000 every month for five years. The return that I expect is more than 15 per cent annually. My expectations are on the higher side and I am willing to take high risks. I am even ready to lose my net worth in the process. Please suggest suitable mutual funds.

Poornima

You have very clearly stated your risk appetite and your ability to withstand any erosion in your investments.

Achieving 15 per cent annually over a five-year timeframe is not very easy. The markets have to witness a secular rally over many years for you to be able to make such returns.

After the fall in 2008, the markets rallied spectacularly from March 2009-November 2010. But the last three years have seen the market remain largely range-bound.

It would thus be difficult to say if excellent returns would be achieved even over a five-year time-frame.

But given that you have a high risk appetite, you can consider mid-cap funds to achieve your goals.

Mid-cap stocks now trade at a significant valuation discount to large-caps and may present an attractive option.

Invest Rs 3,500 each in IDFC Premier Equity and ICICI Pru Discovery. Park the balance Rs 3,000 in HDFC Mid-cap Opportunities. All the three funds have an excellent long-term track record.Since you are maintaining a mid-cap portfolio, you must book profits in case of an abnormal rally in the markets and move the proceeds to safer debt instruments.

It is assumed that the amount that you are investing is a surplus that you do not need. Review your portfolio once every year and take suitable corrective actions and rebalance.

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

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