Fund Talk

I am 30 and earn Rs 20,000 a month. I plan to invest in mutual funds where I intend to park Rs 2,000-3,000 every month, for the long term as well as for the short term. Where do I invest so that I am able to make Rs 15 lakh in the short term and Rs 1 crore in the long term?

Jayesh Yadav Although you have stated in monetary terms what your short- and long-term goals are, you haven’t defined the timeframes.

You must be realistic with respect to the corpus that you wish to accumulate, in the light of your limited surplus.

So, if you invest Rs 3,000 every month, and the returns on the sum is 12 per cent, it would take you 30 years to reach the target of Rs 1 crore. You have to invest separately for the other Rs 15 lakh that you wish to accumulate in the short term.

Again, to reach Rs 15 lakh, it would take you 13-14 years, if the rate of return is 15 per cent.

So, you must prioritise one goal and start saving towards it. When your surplus improves, you can target other goals.

Since you are new to investing, start off with large-cap or balanced funds.

Invest Rs 2,000 in Quantum Long Term Equity and Rs 1,000 in HDFC Balanced.

*** I am 34. I have started investing Rs 8,000 a month through the SIP route for the last seven to eight months in different MFs as follows:

Rs 1,000 each in ICICI Pru Dynamic, ICICI Pru discovery, SBI Equity , SBI Magnum Global, SBI Magnum Emerging Business and SBI Gold.

In Reliance Growth, Reliance Equity Opportunities, Reliance Banking and Reliance Pharma, I have parked Rs 500 each.

Is my fund selection appropriate or should I exit some funds and opt for some other better funds? If I want to invest Rs 3,000 per month more through SIP, which funds should I select? I want to accumulate Rs 50 lakh in 15 years. I am ready to take moderate to high risk.

Arun

You have gone about the task of building a corpus in a very haphazard manner. There are many flaws in the way you have chosen funds for the purpose of reaching your target.

First, you have spread Rs 8,000 across as many as 10 different schemes, which makes the portfolio too diffused and also difficult to monitor.

Second, you have invested in multiple funds from the same asset management companies. This would deny you the opportunity of investing across different funds houses and benefiting from their varying styles.

Third, you have also taken too may theme and sector funds, which require constant monitoring as well as much care in the timing of entry and exit. Unless you have a decisive view on the sectors, it may be in your interest to avoid them, even though they may have a good track record.

One good aspect about your investments is that you have a very realistic target and have given yourself a sufficiently long time frame for achieving the corpus.

The Rs 8,000 that you are currently investing, together with the additional Rs 3,000 that you wish to invest, will help you reach Rs 50 lakh in 15 years, even if the returns generated are a modest 11 per cent.

You must spread the Rs 11,000 across not more than four funds.

Since your return expectations are modest, you need to take only moderate risk and not heavy risk.

ICICI Pru Dynamic and ICIC Pru Discovery are both good funds with a reasonably sound track record. The former is a normal diversified fund that can move into substantial cash and debt positions when the markets fall, while the latter is a mid-cap scheme.

Instead of these two, we suggest a switch to ICICI Pru Focussed Bluechip, where you can invest Rs 3,000.

Among the four funds from the Reliance stable where you have invested — Reliance Growth, Reliance Equity Opportunities, Reliance Banking and Reliance Pharma — you can retain Reliance Equity Opportunities alone and invest Rs 3,000 there. This is a multi-cap fund that has had a fine run over the past few years.

Reliance Growth has been a laggard, while the other two are sector funds and may not suit your purpose.

Among SBI Equity, SBI Magnum Global, SBI Magnum Emerging Business and SBI Gold, you can retain SBI Magnum Emerging Business, which is a mid-cap fund and invest Rs 2,000 there.

But, as mentioned earlier, in the light of your reasonable returns expectation, if you want to take lower risks, you can invest the same in HDFC Balanced instead.

Invest the additional Rs 3,000 in Quantum Long Term Equity, a fund with an excellent track record over the past 4-5 years.

Once your surplus increases, invest in other asset classes such as debt (PPF, NSC and bank FDs), gold and if possible real-estate so that you create a balanced portfolio.

Review your investments periodically, say, once every year, and take corrective action to weed out underperformers and also to rebalance.

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

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