Mutual Funds

Go for a basket, don’t rely on one scheme

K. VENKATASUBRAMANIAN | Updated on October 05, 2013

Investing in multiple schemes allows creation of a balanced portfolio.

I am 35 and have been investing Rs 1,000 every month through the SIP (systematic investment plan) mode in HDFC Top 200 since June 2011. I have an investment horizon of 15 years. The fund’s performance has not been satisfactory. Should I switch to UTI Opportunities?



Sachin

You are quite right in noting that HDFC Top 200 has not been delivering well over the past couple of years. But please note that the fund has an excellent long-term track record, if you go by its performance over the last 10 years.

Given that you have a 15-year horizon, short-term underperformance should, ideally, not matter. But HDFC Top 200’s indifferent run has been continuing for nearly two years now. So stop further SIP investments in the fund, but do not sell it in a hurry.

You can start fresh investments in UTI Opportunities. Please note that over the long term you must build a portfolio with a basket of funds and not rely on a single scheme.

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I am 31 and work for a public sector bank, drawing a salary of Rs 21,000. I have been investing Rs 1,000 each in SBI Contra fund and PPF respectively. I want to accumulate Rs 20 lakh in 20 years for the educational expenses of my two daughters. What are the investment options to reach my goal?

J. Mathan Kumar

It may be quite challenging for you to achieve the target of Rs 20 lakh, given your monthly level of investments.

SBI Contra has been underperforming for a few years now. Stop SIPs in the scheme and sell the units in rallies. Start fresh investments in a well-established, large-cap oriented fund such as Quantum Long Term Equity. Park Rs 1,000 in the scheme.

Now if your SIPs in the fund manage to deliver 12 per cent returns annually, at the end of 20 years you will be able to accumulate a corpus of around Rs 10 lakh. Your investments in PPF (assuming 8 per cent interest rates) will provide you with a little under Rs 6 lakh. So, there is likely to be a shortfall of Rs 4 lakh in your target. This can be bridged if you can invest more money once your surplus increases.



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I am 43 and work for an MNC. I contribute Rs 14,000 per month to my PF account. My investments in mutual funds through the SIP route are as follows:

Birla Sun Life Frontline Equity – Rs 2,000; DSP Blackrock Top 100 Equity – Rs 3,000; DSP Blackrock Small & Midcap – Rs 3,000; HDFC Top 200 – Rs 3,000; HDFC Equity – Rs 2,000; Reliance Pharma – Rs 3,000; Reliance Banking – Rs 2,000; Reliance Equity Opportunities – Rs 4,000; Reliance Gold Saving Fund – Rs 5,000.

These investments have been made over the past one to three years. Can I accumulate a corpus of Rs 75 lakh by 2019?

B. Y. Devdhar

If you invest Rs 27,000 for the next six years (till your time-frame of 2019), and if the returns are 12 per cent annually, you will be able to accumulate a little over Rs 38 lakh (including your investments over the past few years). For accumulating Rs 75 lakh, the returns from your portfolio have to be 35 per cent annually! No fund can deliver such returns over such a short time-frame.

Either increase your goal to 10-11 years or increase your investments to Rs 62,000 every month. The former course of action may be advisable.

Coming to your portfolio, you have invested in multiple schemes from the same fund houses which would deny the benefits of different investment styles. There is also considerable overlap in portfolio as investments have been made in similar funds. There is also no focus in the choice of schemes, further heightened by the fact that you have also invested in sector funds which may be highly risky in the process of portfolio building.

Split Rs 27,000 as follows: Invest Rs 6,000 each in Birla Sun Life Frontline Equity, ICICI Pru Focused Bluechip and Canara Robeco Equity Diversified, which are three large-cap oriented funds with an excellent track record. Park Rs 3,000 each in IDFC Premier Equity and HDFC Midcap Opportunities, while Rs 2,000 can be invested in Reliance Equity Opportunities. The balance can be parked in Goldman Sachs Gold BeES ETF.

You can exit Reliance Banking and Reliance Pharma in rallies. Also consider selling DSPBR Small and Midcap as you would already have a couple of sturdy mid-cap performers in IDFC Premier Equity and HDFC Midcap Opportunities.

Gold must not form more than 5-10 per cent of your investments - you had parked nearly a fifth in a gold fund. You can sell existing investments in Reliance Gold Savings in rallies.

HDFC Top 200 and HDFC Equity have considerable portfolio overlap. You can switch from HDFC Top 200 to HDFC Equity. But do not make any fresh investments. Retain the fund, but keep a tab on performance.

Queries may be e-mailed to mf@thehindu.co.in, or sent by post to Business Line, 859- 860, Anna Salai, Chennai 600002.

Published on October 05, 2013

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