Fund Talk

I am 30. I started three SIPs last year, when my daughter was born. I invest Rs 1,000 in each of the following funds every month: Reliance Pharma, Reliance Regular Savings and Reliance Banking.

I can take high risks and have an investment horizon of 25 years. I am saving for my daughter’s marriage and higher education. Is my portfolio the right way of going about achieving my goals or are there any changes that need to be made?

I can invest another Rs 3,000, which I wish to park in Reliance Liquid fund, but am waiting for a significant market correction.

Vijayalakshmi M V

You have the right ideas in terms of giving a fairly long timeline for your investments to meet your financial goals. What is more, you also have a fairly high risk appetite. But the way you have gone about constructing your portfolio is flawed on multiple counts.

First, you have chosen two sector funds for the purpose. Sector or theme funds require considerable care with reference to entry and exit.

These are also fairly risky in nature and you will need to book profits constantly by monitoring such funds closely. This makes them unsuitable for building a long-term portfolio.

It is also not clear if you have invested in Reliance Regular Savings Equity or Balanced.

Second, you have chosen all funds from the Reliance stable which would deprive you of the opportunity to diversify the risk-return prospects by investing in various fund houses.

Third, with the Rs 6,000 that you can deploy (including the additional Rs 3,000 that you wish to park), you have spread yourself slightly thin. Ideally, restrict yourself to 2-3 funds.

You would do well not to wait for market corrections, for they are elusive. With a 25-year investment horizon, you shouldn’t be too worried about ‘the correct’ time to enter the markets. With SIPs, you can ride out volatility quite easily over such a long timeline.

Coming specifically to your portfolio, both the sector funds that you hold have an excellent track record, but may not suit your purpose. Exit all the three funds and switch to Reliance Equity Opportunities, a multi-cap scheme with a good track record over the past few years.

Invest Rs 2,000 each in IDFC Premier Equity, a solid mid-cap fund and if you are willing to take greater risks, you can invest Rs 2,000 in HDFC Midcap Opportunities.

Review your portfolio once every year and take stock of the funds’ performance so that you can take corrective action in terms of removing underperformers and rebalancing.

If your surplus increases, invest in gold funds such as Reliance Gold Savings to the tune of 5-10 per cent of your portfolio.

*** I invested in SBI Magnum Tax gain scheme-dividend reinvestment option in Decmber 2007. The scheme has declared dividend five times from 2008 to 2012, the last one being on March 22, 2012.

Since the performance of this fund is not good, I wish to redeem all the units. Since this is an ELSS (equity linked savings scheme) fund, it had a lock-in of three years, ending in December 2010.

Will the dividend reinvestment also have a lock-in period? What about the dividend, declared on dividend reinvested? Will this mean, theoretically, that I can never come out of this fund? In that case kindly advise me as to how to exit the scheme once and for all.

B.Varadarajan

t is not as if you cannot get out of SBI Magnum Tax Gain. You can exit the fund by following some simple steps. First, change from dividend-reinvestment to growth or dividend options. If you are sure about exiting the fund, take the growth option. Once you do that, all the units other than those you got additionally through dividend reinvestment can be sold as the lock-in period for these units is over.

All the additional units that you got through dividend-reinvestment will have a lock-in period of three years each. Sell them when such units complete three years. So, by 2015-16, you can fully exit all the units of the scheme.

*** I am 30 years old. I have been investing Rs 3,000 each in HDFC Top 200 fund and HDFC Equity through SIPs since September 2010. The values of the funds are now below my investments. Should I continue with the same or shuffle my portfolio so that I am able to build a large corpus?

Ragunathan

The last couple of years have seen very choppy market conditions. Key indices touched lifetime highs in November 2010 and then started to slip relentlessly.

It is not surprising then that your SIP values are below your investment levels. But this alone should not be the criterion for you to judge performance as you must also view it the context of how benchmarks and other similar funds have fared.

Coming specifically to your portfolio, both HDFC Top 200 and HDFC Equity are funds with an excellent track record of over a decade. But they have significant overlap in holdings.

Redistribute Rs 6,000 as follows. Invest Rs 2,500 in HDFC Equity. Park Rs 2,000 in ICICI Pru Focussed Bluechip Equity and Rs 1,500 in Quantum Long Term Equity.

For building a large corpus, you must invest with a time horizon of 7-10 years, step up sums when surplus increases, invest in multiple asset classes such as debt, gold and, if possible, real-estate.

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

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