Your fund portfolio

I am new to mutual fund investing and plan to start monthly investments of ₹10,000 in mutual funds through the SIP (systematic investment plan) route.

My goals are long-term, around 15-20 years away. Could you please suggest appropriate funds for achieving my goals?

Anil Kumar

By giving yourself a long timeframe to achieve your goals and choosing mutual funds to get there, you have made the first right move in investing.

Given that you are a beginner, a relatively moderate-risk portfolio is being suggested.

Invest ₹3,000 each in UTI Equity and ICICI Pru Focused Bluechip, which are quality large-cap funds. Park ₹2,500 in Mirae Asset India Opportunities, which is a proven multi-cap performer. Invest the balance ₹1,500 in HDFC Mid-cap Opportunities, a scheme with a strong record.

Review the performance of the funds in your portfolio once every year and take corrective action to pull out prolonged underperformers and to rebalance.

A year or so before your goal is due, book profits or sell units and move the proceeds to safe debt avenues.

Over the long term, try to also invest in debt (FDs, RDs, PPF, NSC), gold and later on real estate so that there is adequate diversification across asset classes.

I want to start investing in mutual funds. My goal is to build a corpus of ₹1 crore in 10 years. I can invest around ₹65,000 every month currently. Every year, I can increase this monthly instalment by ₹5,000.

Can you please suggest some good funds? For maintaining a balance equivalent to three months’ earnings, should I invest in liquid funds? Further, do I need to invest in gold ETF for my target? How should my asset allocation be?

Sachin SD

You have set aside a large sum of money for your investments. Your return expectations too appear to be very low. If you invest ₹65,000 every month for 10 years, you can reach your target of ₹1 crore with returns of less than 5 per cent. That can be achieved by simply keeping your money in a savings bank account.

It would be better if you invest ₹45,000 in equity mutual funds to earn an expected 12 per cent annually. That way you can reach ₹1 crore in 10 years. The balance ₹20,000 can be invested in other avenues such as PPF, NSC, and RDs. Gold is a hedge against inflation and must not account for more than 5-10 per cent of your portfolio. SBI Gold ETF is a reasonable choice.

Asset allocation depends on your age, risk appetite, investment horizon, and return expectation. Early on in your career, you must have greater exposure to equity, say, 80-85 per cent. As you grow older, reduce equity exposure and expand investments in debt, gold and real estate to have a balanced portfolio.

For maintaining savings equivalent to three months’ expenses, you can look at savings bank account itself, especially the ones that offer higher interest rates.

Liquid funds can also be considered, but with the new tax laws this may not be as attractive as before. A safer approach would be to have six months’ expenses as an emergency fund.

Coming to the amount that you can invest in equity funds, split ₹45,000 as follows: invest ₹7,500 each in UTI Equity, Quantum Long Term Equity and L&T Equity.

These are predominantly large-cap funds with proven records. Park ₹6,500 each in Mirae Asset India Opportunities and Franklin India Flexi Cap, which have delivered well over the years. Invest ₹5,000 in HDFC Mid-cap Opportunities and ₹4,500 in ICICI Pru Value Discovery. You will thus have a blend of funds across market caps.

Ensure that you take a medical cover and a term insurance policy immediately, in case you already haven’t done so.

Book profits or sell units and move proceeds to safer debt avenues if you reach your target ahead of time. Review the schemes in your portfolio at least once every year to cull out prolonged underperformers and to rebalance.

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