Mutual Funds

Fund Talk: MF route to corpus building

K. VENKATASUBRAMANIAN | Updated on August 04, 2012

I am 26 years old, working as a software engineer and earn Rs 35,000 a month after tax. I am currently investing Rs 5,000 each in PPF and recurring deposit. I would like to invest Rs 5,000 a month through the SIP route in mutual funds and Rs 1,000 in gold schemes. My investment horizon is a minimum of 10 years. My goals are wealth generation and accumulating retirement corpus. Let me know which mutual funds I should opt for.

Sachin N.S

You are doing the correct thing by starting investments early and choosing the mutual funds route to accumulate a corpus.

You have also made a good start by investing in debt instruments such as PPF and recurring deposits.

Your total monthly investments, including mutual funds, would add up to Rs 11,000. So, less than half your investments are in mutual funds.

This proportion may be too low and may be a tad conservative. At your age, you should ideally invest 60-70 per cent of your assets in equity (through mutual funds) and reduce the proportion gradually as you become older.

With at least 10 years as investment horizon, such an asset allocation may not entail high risks. But if you do not have an appetite for risk and are quite conservative, you can continue with your current asset allocation strategy.

Since you are new to mutual fund investments, you can start with large-cap and balanced fund investments.

You can consider investing Rs 2,500 each in HDFC Balanced and Franklin India Bluechip.

If you can take slightly higher risk, then you can instead go for a combination of IDFC Premier Equity and UTI Opportunities with Rs 2,500 in each. You will have mid-cap and multi-cap exposure through such an investment.

As your surplus increases, invest more in mutual funds.

For gold investments, invest in Reliance Gold Savings Fund or Goldman Sachs BeES ETF. But keep gold investments to 10 per cent of your portfolio.

Review your portfolio periodically, say, once a year, to weed out underperformers and to rebalance.

My wife and I together earn Rs 9 lakh a year. We are investing Rs 7,000 a month through SIPs in the following funds: HDFC Top 200 (Rs 1,000), IDFC premier Equity (Rs 2,000), Canara Robeco Equity Diversified (Rs 1,000), UTI Opportunities (Rs 1,000), Fidelity Equity (Rs 1,000) and Reliance Gold Savings (Rs 1,000).

We are also investing in bank recurring deposits of Rs 5,000. We are servicing two car loans: Rs 11,000 (35 months pending) and another Rs 5,000 (23 months pending). We are planning to buy a flat/plot in 2015. Please suggest two more funds that we can invest in for Rs 3,000 a month through SIP (which will make it a total of Rs 10,000 a month).

Aswin AshokYou are dissipating your investment across too many funds and there is duplication in your holdings. Split Rs 10,000 across funds as follows:

Invest Rs 3,000 each in HDFC Top 200, UTI Opportunities and IDFC Premier Equity. Park Rs 1,000 in Reliance Gold Savings fund.

Canara Robeco Equity Diversified is an exceptional performer. But its multi-cap mandate is similar to that of UTI Opportunities. Stop SIPs in Fidelity Equity and adopt a ‘wait and watch’ approach as the fund house has been recently taken over by L&T Mutual.

As your surplus increases, you can increase your investments. We note that you have reasonable levels of debt investments as well. So your portfolio looks fairly balanced.

Please note that if you plan to buy a flat or a plot in 2015, you should count on your mutual funds to reach that goal as three years is too small a period for mutual funds to work, especially if there is no prolonged market rally.

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Published on August 04, 2012

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