Fund Talk

I am 35. I invest in monthly SIPs in mutual funds as follows: HDFC Top 200 – Rs 5,000, HDFC Prudence - Rs 5,000, Franklin Blue Chip Rs 3,000, Quantum Long Term Equity Rs 3,000, HDFC Equity Rs 1,000, HDFC Small and Opportunities Rs 1,000, Franklin Prima Plus Rs 1,000, Franklin India Equity Income Rs 1,000, Kotak50 Rs 2,000, and Sundaram SMILE Rs 1,000. I also invest in direct equity to the tune of Rs 10,000 a month and in Gold ETF Rs 5,000 a month. I also have exposure to ULIPs (unit linked insurance plans) and money back policies.

I can invest Rs 7,000 more a month.

The present value of my MF portfolio is Rs 5 lakh and direct equity Rs 7 lakh. I need Rs 1.20 crore in 10 years (retirement corpus and son’s education).

With this investment pattern and quantum, can I reach my goal? I understand that equity investment is risky, but a good investment will not fail in the long run.

Hari

Your investment is a bit all over the place, with your MF portfolio, in particular, suffering from overlaps and too many schemes coming from one or two fund houses.

What is more, you are also investing directly into equity every month as well.

Before we get into your fund portfolio, the good news is that your target of Rs 1.2 crore is achievable.

Your MF investments of Rs 23,000, direct equity saving of Rs 10,000 and the Rs 5,000 parked every month in gold ETF are enough to reach your goals.

If your MF and direct equity investments earn 12 per cent and gold ETF manages 10 per cent annually over the next 10 years, you can conveniently reach the target, together with your existing corpus. The returns expectations are reasonable.

As you are aware, any market-linked investment is risky. Good investments may not fail in the long run, but how sure can you be that you have made the right choices, especially in directly choosing stocks? Research the companies whose shares you wish to buy and keep a tab on them constantly. There are cases where stocks have been decimated by 30-40 per cent on a single day. If you cannot closely monitor your portfolio, you would be better off investing in mutual funds.

Coming to your mutual fund portfolio, you have four funds from the HDFC stable and three from Franklin Templeton group. This makes for too much concentration and would deprive you of the benefits of diversification across fund houses and other investment styles.

Also, HDFC Top 200 and HDFC Equity have significant overlap in terms of holdings and hence the former can be exited.

So distribute the Rs 23,000 as follows:

Invest Rs 5,000 each in HDFC Equity, Quantum Long-term Equity and Franklin India Bluechip. These three funds would give you exposure to large- and multi-cap funds.

Invest Rs 5,000 in IDFC Premier Equity, which is a mid-cap fund with an excellent track record.

The remaining Rs 3,000 can be invested in HDFC Prudence or HDFC Balanced.

Exit Kotak 50 and Sundaram SMILE as these funds haven’t had a great run over the past few years.

You can also exit HDFC Mid-cap Opportunities (a fund with a good record) as IDFC Premier Equity will serve your purpose better. As you already have one fund from the Franklin Templeton stable and as the portfolio suggested above has a good set of multi-cap funds, exit Franklin India Prima and Franklin India Equity Income.

Since you are already heavily invested in MFs and equity, you can use the additional Rs 7,000 that you intend to invest elsewhere.

You can open a PPF account and deposit this sum monthly there as the rates are good and it also provides tax benefits. You can also choose good recurring deposits that offer reasonably high rates at present. You may also invest in the 10-year NSC scheme.

You could have taken a term cover instead of going heavy on ULIPs and money back policies. If the minimum premium payment period is over, stop further investments in ULIPs and sell out in any significant market rally.

In case of money back policies, once they mature, move the proceeds to safe debt instruments.

Given your age, you can invest in equity, debt and gold in the ratio of 65:25:10. Your investment in equity is on the higher side, but may be justified given your risk appetite.

Review your portfolio periodically to weed out underperformers and to rebalance.

In case of abnormal gains in any year, book profits and move the proceeds to safer avenues.

If you reach your target ahead of time, again, move to less-risky debt investments.

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

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