Your fund portfolio

I have been investing ₹2,500 every month in IDFC Premier Equity through the systematic investment plan route for the last one year. Should I continue investing in the scheme? I am planning to invest an additional ₹2,500 in mutual funds. In which scheme should I park this amount?

Gomathi Sankar R

You have started investing in a mid-cap scheme, which may not be the best way to begin unless you have a higher risk appetite.

IDFC Premier Equity has a strong long-term track record, but has fallen behind top peers over the past couple of years.

Stop further investments and watch its performance before putting in additional amounts. Invest in ICICI Pru Value Discovery, a quality mid-cap scheme instead. Of course, as indicated earlier, you must have the stomach to absorb volatility in your portfolio, which is inherent to most mid-cap funds. Park the balance ₹2,500 in Birla Sun Life Top 100, which invests predominantly in large-cap stocks. Have a long horizon of at least 5-7 years with specific financial goals.

I am 30 years old and wish to save for my daughter's higher education. I want to save for a period of 15 years, by which time she would be entering college.

I am currently investing ₹5,000 every month in both ICICI Prudential Technology and SBI Pharma. Are these good investments or should I make changes?

Shrotriya

You have done well by identifying your goal and investing early on. But you have an inappropriate set of schemes to build the corpus required to fund your daughter’s education. Both schemes in your portfolio are thematic funds and are generally risky as well as unsuitable for long-term goals.

These require a certain degree of timing on entry and exit. You would also need to be on top of the fundamentals underlying these themes – technology and pharma, in your case. All this may not be easy for retail investors. Of course, both ICICI Prudential Technology and SBI Pharma have done well in recent years given the run in the underlying themes in the last 4-5 years. But there is no certainty that this would be repeated in the future. These schemes can, at best, be used as diversifiers after you build a strong portfolio with diversified funds.

Hence, stop further investments in the two schemes. Split ₹10,000 as follows: invest ₹3,000 each in UTI Equity and ICICI Pru Focused Equity. Park ₹2,000 each in Franklin India Flexi-cap and HDFC Mid-cap Opportunities. By following this pattern, you will have a portfolio of large-, multi- and mid-cap funds with a desirable level of diversification. Review the schemes in your portfolio once a year and carry out modification, for rebalancing or to remove prolonged underperformers. About a year before your goal, book profits or sell units and move the proceeds to safe debt instruments.

I am 29 years old. I have started investing ₹1,000 each in UTI Dividend Yield, UTI Mid-cap, UTI Transport & Logistics and Reliance Small-Cap. My time horizon is 5-7 years. Please suggest any changes that may be required in my portfolio.

Manoj

For the amount that you are investing (₹4,000), you should not be looking at having any more than two funds in your portfolio. Also, you have too many funds from the same house. This would deny you the opportunity to diversify across asset management companies and benefit from the investing styles of different managers.

All the schemes in your portfolio are mid-cap or are dominated by mid-cap holdings in their portfolio. This means that your portfolio would be subject to high risks and would not be balanced. Exit UTI Dividend yield as it has fallen behind top funds in its category. UTI Transport and Logistics, being thematic, may not be suitable for long-term goals and so you can move out of this fund too. Continue investing in UTI Mid-Cap and park ₹2,000 in it. Reliance Small-Cap has done well over the past year, but does not have a long track record to go by. If you want to have another mid-cap fund in your portfolio, invest ₹2,000 in Franklin India Smaller Companies.

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