I am 31 years old, married, with three dependents — my wife and parents. I have made the following investments in mutual funds in the form of SIPs.

DSP Black Rock Mid and Small Cap – Rs 2,000; IDFC Premier Equity Plan A - Rs 10,000; HDFC Top 200 - Rs 5,000; Reliance Regular Savings Equity - Rs 2,000; HDFC Prudence - Rs 2,000; ICICI Prudential Blue Chip - Rs 2,000 and ICICI Prudential Discovery – Rs 7,000.

Apart from these, I have savings in Franklin Templeton Tax Shield worth about Rs 45,000.

Please suggest any changes to be made to my existing portfolio.

Karthik

Most of the funds that you have chosen have a reasonable track record. But in choosing different schemes, you have created considerable overlap. Your allocation to different funds too is not appropriate and may require some rebalancing.

First, your portfolio has too many mid-cap funds, this needs to be trimmed as there would be considerable overlap in the holdings of these schemes and the risk profile of your portfolio would increase.

Next, you must add some good large- and multi-cap funds to your portfolio to have a balanced profile. The amount that you are investing every month (Rs 30,000) can be split as follows:

Invest Rs 5,000 in IDFC Premier Equity. You can exit DSPBR Mid and Small Cap — though it is a scheme with a fairly good track record, you already have a couple of better mid-cap funds in your portfolio.

If you can take more risks, you can retain ICICI Pru Discovery and invest Rs 5,000 in it. Both IDFC Premier Equity and ICICI Pru Discovery do have stronger performance records compared with DSPBR Mid and Small Cap.

Invest Rs 6,000 each in HDFC Top 200 and ICICI Pru Focused Bluechip. You can switch from Reliance Regular Savings Equity to a stronger multi-cap fund in the form of Quantum Long Term Equity and park Rs 5,000 there.

For the balance Rs 3,000, you can take up one of the following choices. You can continue to invest in HDFC Prudence, a balanced fund with an excellent long-term track record.

Alternately, you can invest the amount in HDFC Gold Fund as a diversifier. You may also choose to invest the amount in a good debt scheme such as Birla Sun Life Dynamic Bond.

Franklin India Tax Shield may be retained till its lock-in period is over. Review your portfolio once every year and make suitable modifications, if necessary. If you reach your target returns ahead of time, book profits and move the proceeds to safer debt schemes.

*** I am currently investing in the following funds with a four-year time frame to generate Rs 16-18 lakh to construct my house.

My investments through the SIP route are to the tune of Rs 4,000 monthly in each of the following funds: ICICI Pru Focused Bluechip Equity, IDFC Premier Equity, HDFC Balanced, ICICI Pru Discovery, HDFC Equity.

Please tell me whether the allocations are appropriate. I can shift my time frame from four to six years if need be.

Chandrasekkar

You have chosen a good set of funds to achieve your goal.

Now, achieving Rs 16-18 lakh is quite possible in 5-6 years’ time.

In the normal course, a period of five years spent in investing in the markets may be expected to deliver inflation beating returns.

But if you were to look at the period 2008-2013, you may get marginal or even negative returns going by the returns delivered by standard benchmarks.

This is one aspect that you may want to note to avoid disappointment later. But having said all this, you need to be optimistic about investing, though return expectations have to be moderate.

Now, if you invest Rs 20,000 every month for the next six years and the returns delivered by your funds are 10 per cent, you will end up with close to Rs 20 lakh. So, some time around the middle of the fifth and the sixth year, you will have earned your targeted sum of Rs 18 lakh. Of course, you may get there earlier if returns are higher.

Since you are using this money for as important a task as building a house, please review your portfolio periodically and take corrective action.

In case of abnormal returns in the markets, do not hesitate to sell funds and move proceeds to safer debt avenues.

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