Fund Talk

I am a software engineer, aged 21. I have made investments in the following funds in the form of SIPs.

In ICICI Pru Focused Bluechip Equity, Rs 4,000, HDFC Top 200 – Rs 3,000, Rs 2,000 each in HDFC Prudence and IDFC Premier Equity, and Rs 1,000 each in Birla Sun Life Dividend Yield Plus, Reliance Banking and ICICI FMCG.

I have been investing in mutual funds for the past two months. Please let me know if I need to make any modifications. My goal is to achieve a corpus of Rs 2 crore in 20 years.

Vignesh

It is wonderful to note that you have started investing for the future so early into your career. This would leave you with sufficient time to achieve all goals.

If you invest Rs 14,000 every month for the next 20 years, you will end up with a little over Rs 2 crore, assuming that the portfolio yields a 15 per cent annual return.

Coming specifically to the funds that you hold, most of them are quite good with strong track records across market cycles.

But with some minor tweaking, your portfolio will look even better.

Continue investing in ICICI Pru Focused Bluechip Equity. Invest Rs 4,000 each in HDFC Top 200 and IDFC Premier Equity. This would give you a blend of large and mid-cap funds with a moderate risk profile.

The balance Rs 2,000 can be invested in Fidelity Equity, a multi-cap fund with a steady track record. But if you have a lower risk appetite, you can consider parking this Rs 2,000 in HDFC Prudence, a balanced fund with a long history of delivering sound returns.

Although Birla Sun Life Dividend Yield Plus has performed well over the past few years, we believe that the above funds should suffice for achieving your target.

Exit ICICI Pru FMCG and Reliance Banking as these are sector funds and need active tracking.

Also note that building a corpus must not be done with equity alone. When you are able to generate a higher surplus, allocate some portion to debt, gold and real-estate.

That would ensure a balanced portfolio for the long run.

*** I need your advice on mutual funds. How are funds categorised as large-, mid- and small caps?

Also, can you list out differences, such as pros and cons between a mid-cap Fund (such as IDFC Premier Equity) and a multi-cap fund (such as Quantum Long Term Equity). What should be done to build a strong and stable portfolio?

Mehul

Classification of funds as large-, mid- and small-caps is done on the basis of the market capitalisation of their underlying stocks.

If a fund decides to invest at least 75 per cent if not more, in, say, large-cap stocks (say the top 200 stocks by market capitalisation) then it would be called a large-cap focussed fund. You will find that large-cap funds pick stocks from the Sensex, Nifty or the BSE 100 or BSE 200 basket. These are large companies with relatively stable earnings and reasonable revenue visibility. HDFC Top 200 is an example of a large-cap fund.

On the other hand, a fund that invests predominantly in stocks with market capitalisation of say Rs 500- 8,000 crore may be a small or mid-cap fund. Given that they are mostly mid-sized companies, their earnings may fluctuate more during tough economic condition and hence their stock price movement can be quite volatile.

So, mid- and small-cap stocks hold potential to deliver superior returns when the going is good and hold the risk of being decimated when markets fall. That makes them more risky when compared with large-cap stocks.

The market-cap range used to define a large-cap and mid-cap may vary based on market conditions and how a fund chooses to define them.

Multi-cap funds take exposure to stocks across market capitalisation with a varied proportion based on their outlook and market conditions.

Building a portfolio with different types of funds depends on your risk appetite, time horizon and return expectations.

A balanced portfolio would have a blend of funds, invested for the long-term (at least 5-7 years).

A typical collection would include large-cap funds such as ICICI Focussed Bluechip Equity, HDFC Top 200, Franklin India Bluechip, to name a few. Next come mid-cap funds such as IDFC Premier Equity and HDFC Midcap Opportunities. Balanced funds such as HDFC Prudence, HDFC Balanced or Birla Sun Life '95 are also good additions.

*** I want to know in which mutual fund I should invest. I can invest up to Rs 10,000 in five different SIPs. Would you please suggest the good ones?

Neha Satve

You have posed us an open-ended question. You have given just the amount that you can spare with no details on why you want to invest in five SIPs, your risk appetite and time horizon or goals for which you wish to save.

Without these details, it would be difficult to suggest appropriate funds for you.

Please look up Business Line's recommendations, where the suitability of different funds is given for each call, and choose the ones most appropriate for yourself.

Queries may be e-mailed to >mf@thehindu.co.in , or sent by post to Business Line, 859- 860, Anna Salai, Chennai 600002

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