I am 39 and wish to accumulate ₹2 crore by the time I turn 65. I wish to invest in mutual funds through the systematic investment plan route. Please suggest funds. Also, how do I rebalance my portfolio periodically?

- Venkata Krishna Reddy Vajrala

You have done well by having a long-term goal with a defined financial target.

If you invest ₹11,000 every month for the next 25 years and the annual returns are 12 per cent, you would comfortably be able to accumulate ₹2 crore. Over 10 years, quality equity funds may beat inflation convincingly, though there is no guarantee.

Since your return expectations are reasonable and you have a long-term investment horizon, you need not take too much risk in your portfolio.

Now, split ₹11,000 as follows: park ₹4,000 each in ICICI Pru Focused Bluechip and Quantum Long Term Equity, which are quality large-cap names. Invest the balance ₹3,000 in Franklin India Flexi-cap, a proven multi-cap scheme. If you can take more risk, put this ₹3,000 in HDFC Mid-cap Opportunities instead.

Reviewing funds at regular intervals means you take stock of the performance of the schemes in your portfolio once every year. Check the scheme’s performance with its benchmark and peers in the category.

If any scheme consistently lags on all these aspects, it may be time to take a second look at the fund and exit it.

Also, take note of the prevailing market and economic conditions. Change in fund manager is also something that you need to keep tabs on. If you reach your target ahead of time, book profits or exit units and move the proceeds to safer debt options.

I am 36 and have a three-year-old son. I want to invest ₹10,000 every month and my goal is to accumulate ₹70 lakh in 10 years. Of this ₹10,000, I have started a PPF and park ₹2,000 in it every month. I want to put the remaining ₹8,000 in equity mutual funds. Please let me know of suitable schemes.

Tom Basnet

It is important to be realistic about the potential returns.

Please note that PPF is a 15-year product and if you park ₹2,000 in it every month, you would have a sum of around ₹7 lakh at the end of the period. The other ₹8,000 that you would invest in mutual funds for 10 years would clearly not be enough for you to reach the target, unless you can generate returns in excess of 30 per cent annually! Even if you stretch the target to 15 years, the annual returns necessary to accumulate ₹63 lakh (₹7 lakh would already be accumulated through PPF) would be 16-17 per cent, certainly not easy.

To reach the target within 15 years, you will need to step up your monthly investments by 5-7 per cent at least every year. Though it sounds daunting, with financial discipline and prudent cost management, you can save more and invest more to achieve your goals.

Once your surplus increases, diversify across assets over the long term and create a balanced portfolio.

Now spread ₹8,000 as follows: park ₹3,000 each in UTI Opportunities and Birla Sun Life Frontline Equity. Invest the balance ₹2,000 in IDFC Premier Equity. Review the performance of schemes in your portfolio and take corrective action, if necessary.

I have read that on achieving the planned target corpus, one should move to safe debt options. With what happened in June-July 2013, it seems it is not possible to predict what can happen to debt schemes as well. To which safe debt instruments can I move my investment from equity schemes?

Mahesh

Once you reach your target, the safe debt options may not be debt funds or dynamic bond schemes. You must look at moving the proceeds from equity schemes to plain bank FDs or look at high-quality FMPs depending on when you need the money. You can also opt for liquid funds. As you have pointed out, debt schemes, especially those investing in Government securities, can turn volatile depending on the interest rate and currency movements. Avoid them once you reach your financial target, especially if you need the money for critical goals such as education or marriage.

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