I am 33 years old and have two daughters aged two-and-a-half years and six months. Currently, I am investing Rs 34,000 per month in SIPs for long-term goals with investment horizon of more than 20 years.

The SIP composition is as follows: Quantum Long Term Equity – Rs 8,000, DSP BR Top 100 – Rs 3,500, ICICI Prudential Dynamic – Rs 3,000, HDFC Mid Cap Opportunities – Rs 3,500, IDFC Premier Equity – Rs 4,000, ICICI Prudential Discovery – Rs 3,000, HDFC Prudence – Rs 3,500 and Birla Sunlife Dynamic Bond – Rs 5,500. Please let me know if this allocation is fine.

Anand You have chosen funds of fairly high quality with strong track record over the years.

The other good thing about the corpus building exercise is the long timeframe that you have given yourself. You have also set aside a fairly large sum for achieving a financial goal.

However, there are a few points that we wish to highlight, which may help you to strengthen your portfolio.

First, in the long run, accumulating a large corpus would require you to build a balanced portfolio, with investments in equity (including MFs), debt (fixed deposits, RDs, PPF, NSC, etc), gold and real-estate.

So, we hope you have made adequate investments in other asset classes apart from mutual funds.

For your age, you must be investing about 65 per cent of your money in equity, 15-20 per cent in debt and 10 per cent in gold and the rest if possible in real-estate. As you grow older, investments in equity must come down to reflect your risk appetite and safer options must be looked at.

The other important point with respect to your investments in MFs is that they must be monitored and reviewed once every year to take corrective action and strengthen your portfolio. In case there is an abnormal run-up in the markets, profits must be booked.

Also, if you reach your targeted corpus ahead of time, you must sell the units and move the proceeds to safer debt options. You also need to take a term cover.

If you invest Rs 34,000 for 20 years, you can hope to accumulate around Rs 3.4 crore, if the annual returns are 12 per cent.

Coming to your portfolio, you can consider replacing DSPBR Top 100, fund with a reasonable track record, with a stronger large-cap oriented multi-cap fund such as UTI Opportunities and invest Rs 6,000 there.

Invest Rs 6,000 each in Quantum Long Term Equity and ICICI Pru Dynamic. Invest Rs 4,000 each in mid-cap funds – IDFC Premier Equity, ICICI Pru Discovery and HDFC Mid-cap Opportunities.

Invest the balance Rs 4,000 in HDFC Prudence. Although Birla Sun life Dynamic Bond is an excellent fund, you may not need this if your investment horizon is as long as 20 years.

*** I am looking to invest in IDFC Premier Equity. However, I am not sure if I should pick Plan A or Plan B.

Also, I find that in any mutual fund, there are two options i) Growth, ii) Dividend. Kindly explain the difference between the two and please suggest if I should opt for Growth or Dividend.

Mani V. IDFC Premier Equity is an excellent mid-cap fund with a track record of being the best in its category across market cycles. You can invest in this fund.

But we hope you are investing in many other schemes and not just this fund alone.

You can choose Plan A, as it is meant for retail investors like you. The other plan is for institutional investors.

The fund has closed the scheme for lumpsum investments. The fund has done this quite often as it seeks to limit the inflows to the levels the fund manager wants it to be.

You can, however, invest in the fund through the SIP route.

Coming to your other question on growth and dividend options, there are a few points to note.

In the dividend option, the fund declares payouts as and when it seeks to return some money to investors in case the fund performs well or if there are no avenues for the fund to invest or to bring its corpus to a more manageable size.

Once this dividend is declared, the amount is deducted from the NAV by the same amount.

So, for example, if a fund’s NAV is Rs 12 and it declares a dividend of Rs 2, the new NAV would be Rs 10 for the dividend option. The Rs 2 is returned to you.

The declaration of dividend is not a certainty and asset management companies can go without declaring dividends for years together.

In the growth option, the investment continues with the same NAV.

You must opt for the dividend option only if you require regular cash flows or if you prefer relatively higher safety on your investments as the profits are encashed as and when there is opportunity to do so. Otherwise the growth option would be preferable as the investments would get the benefit of compounding.

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

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