Mutual Funds

Your Fund Portfolio

K Venkatasubramanian | Updated on August 17, 2014


I am 32 and my wife is 27. We are currently investing ₹5,000 every month, in each of the following funds: Birla Sun Life Frontline Equity, Franklin India Prima Plus and ICICI Pru Dynamic. We want to invest ₹10,000 more every month.

Please suggest two schemes where we can park this amount and provide your opinion on our current holdings.

- Prasad

You are investing in a set of quality funds. It appears, though, that your risk appetite is just about average, given that you have opted for funds that invest predominantly in large-caps, with mid-caps making up for a smaller portion. Continue investing in Birla Sun Life Frontline Equity, Franklin India Prima Plus and ICICI Pru Dynamic.

The additional ₹10,000 can be invested in a way where ₹5,000 each is parked in Mirae Asset India Opportunities (a scheme with a large-cap bias) and HDFC Mid-cap Opportunities.

If you can take higher risks, especially given your age, you can invest ₹5,000 in Franklin India Smaller Companies instead of Franklin India Prima Plus. Review the schemes in your portfolio once every year, if necessary, take corrective action. Invest in debt instruments (PPF, FDs, RDs, NSC etc) as well. Later on, consider gold and real estate as portfolio diversifiers, when your surplus increases.

Buy a term cover and a medical insurance policy for yourself and your spouse, in case you haven’t already.

Many funds have delivered excellent returns in this bull market. Is it good to invest now when funds trade at high NAVs?

How can erosion in capital be limited during market corrections?

Is it advisable to liquidate existing units (book profits) in this bull market?

- S Vaidyanathan

It is true that many funds have managed to display a superlative performance over the past few months.

But that should not deter you from investing systematically for the long term. A ‘high’ NAV does not mean that a fund has become unattractive or expensive. Nor is a scheme purchased during its launch at ₹10 any cheaper. All the NAV does is to simply give the value of the underlying stocks on a per unit basis. The fund manager will take appropriate calls on when to enter and exit stocks based on fundamentals as well as some technical calls in line with the scheme’s mandate.

Given that the new Government enjoys complete majority, the revival in corporate India’s sentiments as well as mild improvements in macro-economic indicators, most market experts expect a bull market for the foreseeable future. So, you must invest with a 7-10 year horizon for meaningful inflation-beating returns.

For retail investors, timing the markets is fraught with risk. Hence, systematic investments made every month over the long term would be a good way of buying across market cycles and averaging costs.

Staying invested over the long term would also enable you to benefit from the power of compounding of returns.

Of course, if you need cash or you reach your targeted corpus ahead of time, you must book profits and move the proceeds to safer debt avenues.

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Published on August 17, 2014

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