Mutual Funds

Your Fund Portfolio

K Venkatasubramanian | Updated on September 28, 2014

I want to invest ₹5,000 every month in mutual funds for five years. Which are the best schemes to opt for?

Since you are just starting off on mutual fund investments, a portfolio dominated by large-cap funds is suitable. After you become more familiar with the markets, and as your surplus increases, explore other schemes. Investing for five years is reasonably good, though a timeline of 7-10 years will help generate superior returns.

Also, directing these investments to specific financial goals would enable better decision making in terms of choice of schemes depending on the time horizon and risk appetite. Invest ₹3,000 in UTI Equity, a large-cap scheme with a proven track record. The balance ₹2,000 can be parked in Franklin India Flexi-cap, a multi-cap fund with a fairly impressive long-term record.

I have been investing ₹2,000 every month in Birla Sun Life MNC Fund through the SIP route since January 2010. I am currently sitting on returns of 28 per cent. Going by your column, you do not favour thematic funds for a long-term portfolio. This fund is one of six diversified schemes where I have been investing regularly to fund my retirement plan. Should I continue investing in this scheme?

It is true that thematic funds are risky and are generally not favoured for investments to fund long-term goals. They also require a certain element of timing the markets or specific segments, which may not be easy for retail investors. However, an exception can be made in the case of Birla Sun Life MNC. It has a consistently strong track record of delivering returns across market cycles. Even though its focus is on MNC stocks, the theme is expanded to also include stocks where foreign institutional investors hold large stakes.There are many segments covered in this manner, such as FMCG, automobiles, automobile ancillaries, chemicals, engineering, banks and financial institutions. So, a small portion of your portfolio can be allocated to this fund. Also, since you are investing in several other funds apart from this scheme, continue parking small sums in Birla Sun Life MNC. But in case of any abnormal returns, depending on your requirements, book profits and move the proceeds to safer debt instruments.

I have been investing across quality large-cap funds (Quantum Long Term Equity, HDFC Growth and HDFC Equity) and mid-cap schemes (IDFC Premier Equity, HDFC Midcap Opportunities and Franklin India Smaller Companies) through SIPs since 2010. The yearly returns for large-cap funds over this period is 15-18 per cent, for mid-cap schemes 20-28 per cent.

But going by your column, the average returns for equity funds is always 12-15 per cent. With my gains exceeding 15 per cent annually over four years, should I book some profits now? I am a long-term investor and my goals are still far away. Please also comment on my portfolio.

The average returns of 12-15 per cent is suggested based on long-term returns of the larger indices such as Sensex and Nifty over 15-20 year periods. It is just a safe guideline that beats inflation levels convincingly and does not necessarily signify the upper limit. There are bound to be lumpy returns during volatile markets, such as the one we have been witnessing in the past three-four years. You need not book profits unless you need the money for some short-term goals, liquidity management, emergency needs, or if your portfolio needs some rebalancing to reflect your risk appetite. Since your targets are long-term in nature, you must continue investing.

Coming to your portfolio, you can exit HDFC Growth as it is not a large-cap fund and also due to the fact that you already have invested in another quality scheme from the same house. HDFC Growth, a multi-cap scheme, has underperformed top peers.

Instead, invest in UTI Equity, a quality large-cap scheme. Stop SIPs in IDFC Premier Equity, because of its relative underperformance, instead invest in ICICI Pru Value Discovery, a proven mid-cap fund.

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Published on September 28, 2014

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