No running away from market gyrations

I have been investing in SIPs since November 2010. I invest Rs 35,000 every month in the following: Rs 10,000 each in Reliance Growth, BSL Frontline Equity and ICICI Discovery Fund and Rs 5,000 in DSPBR Small & Mid Cap.

I recently started investing Rs 5,000 a month in HDFC Top 200. I wish to continue investing for as long as possible. Kindly suggest any changes, if needed, and recommend other funds, if I wish to invest more.— N.K. Gupta

You are investing a substantially large sum of Rs 40,000 every month in the form of SIPs. We hope you have made adequate investments in other avenues such as debt.

You have also not stated as to what your investment horizon is and towards which goals you wish to invest. As you have said that you wish to continue investing for as long as possible, we assume that it would be for a period of 5-7 years at least.

Coming to your portfolio, it can do with a more balanced approach. Since you are investing Rs 40,000 every month, you can spread it across six to eight schemes.

You can exit Reliance Growth as its performance has been lagging for the past two to three years. Though Birla Sun Life Frontline Equity has a reasonable track record, we suggest you move to a more robust performer such as HDFC Top 200. IDFC Premier Equity and ICICI Pru Discovery hold a superior track record to DSPBR Small and Mid Cap.

Invest Rs 8,000 each in HDFC Top 200, Canara Robeco Equity Diversified and IDFC Premier Equity. This will give you exposure to large-, multi- and mid-cap funds. ICICI Pru Discovery is a mid-cap fund with a good performance report card over the long term. Invest Rs 6,000 in the fund.

Now, for the balance Rs 10,000, you can invest Rs 5,000 in a balanced fund such as HDFC Prudence and HDFC Balanced. The remaining Rs 5,000 can be parked in a debt fund such as Birla Sun Life Dynamic Bond Fund.

This will give your portfolio a balanced look, while de-risking it significantly. Review your holdings once a year and exit underperformers.

Why have mutual fund returns over the past three years been mostly better than five-year returns? — Viswanath C.K.

Market gyration is the key reason for variation in fund performance over the time frames you have mentioned.

The markets touched their lows in early March 2009 and spiked considerably over the next year and a half. Most market indices more than doubled over this period.

So, you would find that many funds would have done exceptionally well over the past three years. If we take a five-year time frame, the markets have not moved substantially from the levels seen in, say, May 2007. The Sensex, for instance, gained a mere 2.3 per cent annually between then and now. Hence, fund returns, too, are not that high.

In other words, the returns of your equity funds cannot be insulated. What a sound performing fund can do for you is to try and outperform the broad indices during rallies or contain declines during dips.

Also, you must understand that the markets have been extremely volatile over the past three to five years. So, definitive conclusions are not to be drawn about returns being better over a shorter frame of three years compared with a five-year performance.

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