Fund Talk

I am 55 and work in a bank. My sons and I started SIPs for Rs 28,000 a month about a year ago in 14 funds, all through auto debit (ECS) system. The funds and sums invested therein are as follows:

HDFC Midcap Opportunities Rs 3,000, HDFC Top 200 Rs 3,000, HDFC Equity Rs 3,000, Sundaram Select Midcap Rs 1,000, Quantum Long Term Equity Rs 4,000, Birla MNC Rs 4,000, Birla Dividend Yield Rs 1,000, UTI Dividend Yield Rs 1,000, UTI Opportunities Rs 2,000, Reliance Diversified Power Sector Rs 1,000, SBI Emerging Business Rs 1,000, ICICI Discovery Rs 1,000, IDFC Premier Equity Rs 2,000, and Franklin India Blue Chip Rs 1,000.

Our target is accumulating Rs 1 crore in 10 years. Please advise on selecting mutual funds with long-term track record and checking for duplication as well as for underperformers that may have to be weeded out. We are ready to take medium to high risk.

Ramachandran The only thing that you have done right in building a corpus is to give yourself a reasonably long time frame of 10 years. But there are many flaws in the way you have gone about constructing a portfolio.

We will point these out before getting into rebalancing your portfolio to include a compact set of funds.

First, there are far too many funds in your portfolio. With 14 funds, your portfolio becomes completely unwieldy.

Second, there is considerable duplication in portfolio, with multiple large-, mid- and multi-cap funds with no specific focus at all.

Third, too many funds from the same asset management companies is not a good idea as it will deprive you of the opportunity to benefit from the investing styles of different houses.

There is another important point for you to note. If you invest Rs 28,000 a month for 10 years, it will grow to Rs 1 crore only if the returns are nearly 20 per cent annually.

That may be a bit of a tough ask. If return expectations are toned down to more reasonable levels of 14-15 per cent, you will reach your target in 12 years.

We will make our suggestions based on the second scenario mentioned above.

Now, you must not spread Rs 28,000 across 14 funds, but must restrict it to 6-7 schemes.

Invest Rs 4,000 each in HDFC Equity, Quantum Long Term Equity, UTI Opportunities, Franklin India Bluechip and Birla Sun Life Dividend Yield Plus.

This would give you a good blend of large- and multi-cap funds with a robust long-term performance record.

For the balance Rs 8,000, invest Rs 4,000 each in midcap funds IDFC Premier Equity and ICICI Pru Discovery.

HDFC Top 200 is a fund with an excellent long-term track record. But there is considerable duplication with HDFC Equity and so it can be exited. Since there are too many funds from the HDFC stable, we suggest exiting HDFC Midcap Opportunities and believe that the two midcap funds that we have above would serve your purpose.

Similarly, other midcap funds, including Sundaram Select Midcap and SBI Emerging Business, can be exited.

Although MNC investing as a theme has worked over the past few years, the focus is still narrow. Also, valuations of MNC companies listed in India may be a tad expensive. So you may consider getting out of Birla Sun Life MNC.

UTI Opportunities has a broader focus than UTI Dividend Yield, so we would prefer the former.

Finally, Reliance Diversified Power Sector, a theme fund, has not had a good run over the past few years. Power as a sector has been laggard in the markets with many uncertainties surrounding it. Hence it may be in your best interests to stay away from the scheme.

Review your funds periodically to take stock of their performance and to take corrective action, if any is required.

If you reach your target ahead of time, move the proceeds to safe debt options. Book profits in case of any abnormal market rallies.

*** I am 27 years old and earn around Rs 28,000 a month. I am married, with no children, now

I wish to retire at 55 and want to make sure that I have Rs 2 crore at that time.

What do I need to do to achieve this target? How much do I need to save and where do I invest the sum? Currently, I am able to save around Rs 5,000 per month.

Amol Fapale It is nice to note that you have started early to save for your retirement. If you invest Rs 5,000 every month on mutual funds and are able to achieve annual returns of 14 per cent over a 28-year period (when you turn 55), you will comfortably achieve your target of Rs 2 crore.

Before investing, ensure that you set aside 6-8 months’ salary for any emergency.

Since you are new to investing, you can consider large-cap funds that would provide you some stability. Invest Rs 2,500 each in Quantum Long Term Equity and ICICI Pru Focussed Bluechip.

As your surplus increases, invest in other asset classes such as debt, gold and, if possible, real-estate.

Start a PPF account in a few years’ time and invest periodically in it. You can also consider gold ETFs or Gold Saving Funds from various asset management companies. You must ideally invest more in equity early on must gradually reduce it as you age. In the long run, try to create a balanced portfolio across asset classes so that you are able to achieve a large target in a relatively smooth manner.

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