I am 32 and want to invest in mutual funds. My investment now is in PF, where I park ₹11,000 every month. Now, I wish to invest ₹5,000 more. Is Reliance Equity Opportunities a good choice? Please suggest other funds where I can invest for 15 years. What will be the amount I am likely to get after that period?
— Rahul Sunand
You have made a reasonable start by investing in PF. The sum is quite high in relation to what you wish to invest in mutual funds. Given your age, you must ideally invest more in equity compared with debt instruments, so that you generate inflation-beating returns over the long term.
As you are just starting off on mutual fund investments, it is advisable to begin with large-cap schemes or balanced funds.
Reliance Equity Opportunities is a multi-cap fund with high mid-cap exposure. It has delivered quite well over the past five years but can be volatile. If you can stomach risk, invest in the scheme, but put ₹2,500 in it. If you wish to have a more stable fund, invest ₹2,500 in UTI Equity, which invests mainly in bluechip stocks and has delivered quite well over the years. Invest the remaining ₹2,500 in ICICI Pru Top 100, a large-cap fund with a proven track record. As your surplus increases, explore other funds. Try to invest in gold and real estate later on, so that you have a balanced asset allocation.
These schemes being market-linked products, it is not possible to say how much they will deliver over a 15-year period. But if you were to invest ₹5,000 every month for 15 years and the returns are 12 per cent annually, you will have a corpus of around ₹25 lakh at the end of the period.
I have two financial goals — the first 10 years away, and the second 15 years. I have been investing in the following through SIPs: ₹3,000 each in Franklin India Bluechip, Quantum Long Term Equity and IDFC Premier Equity and ₹2,000 each in HDFC Mid-cap Opportunities, ICICI Pru Value Discovery, DSPBR Top 100 and Sundaram Select Midcap. My debt investments include PF and PPF. Do I need to reallocate funds? I would like to have 50 per cent of my investments in large-cap funds and the rest in mid-caps. I have an additional ₹25,000 that I can invest every month too.
You are setting aside a fairly large sum of ₹42,000 (including the additional ₹25,000 you wish to invest) for mutual fund investments. You have stated that PF and PPF are your debt investments, both of which are good long-term products.
Before getting into the specifics of rebalancing your portfolio, you must ensure that you take a term cover and a medical insurance policy immediately, in case you haven’t done so already.
Your choice of funds indicates that there isn’t too much of focus; a performance appraisal too has not been done. Again, for the ₹17,000 you are currently investing, you have chosen as many as seven funds, when four would have sufficed.
Franklin India Bluechip and IDFC Premier Equity have proven long-term records, but have fallen well behind top peers in the last couple of years. Stop further investment in these schemes. DSPBR Top 100 and Sundaram Select Midcap have delivered reasonable returns but have not done spectacularly well over the past few years. You can avoid additional investment in these two schemes too.
Now, split ₹42,000 as follows: Invest ₹5,000 each in Birla Sun Life Top 100, Quantum Long Term Equity, HDFC Top 200, UTI Equity and ICICI Pru Top 100. These are predominantly large-cap schemes with proven track records across market cycles. These should form the core of your portfolio.
Park ₹3,500 each in Reliance Equity Opportunities and Franklin India Flexicap. These are multi-cap funds that have done quite well over the years. Put ₹3,500 each in ICICI Pru Value Discovery and HDFC Midcap Opportunities. These allocations will give your portfolio an approximate 60:40 break-up between large- and mid-caps. Park the remaining ₹3,000 in R*Shares Gold ETF, so that you create an inflation hedge through investment in gold.
Review your portfolio once every year and take corrective action, if necessary. If you reach your target ahead of time, book profits and move proceeds to safer debt avenues.
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