Mutual Funds

Your fund portfolio

K Venkatasubramanian | Updated on November 09, 2014

I am 25 years old. I want to start SIPs in some balanced funds and I can invest up to ₹5,000 a month. My goal is to beat inflation and have an investment horizon of 10 years. Please suggest some funds.

Khushboo Singh

Given your age and investment horizon, it is surprising to note that you have low risk tolerance, given your preference for balanced funds. You must at least opt for large-cap funds for an investment period spanning 10 years. Diversified equity funds offer a better chance to beat inflation over the long term, though a select set of equity-oriented balanced funds have also managed to deliver strong returns.

Invest ₹2,500 in ICICI Pru Top 100, a large-cap fund, and the balance ₹2,500 in HDFC Balanced. But if you are insistent on balanced funds, consider Tata Balanced instead of ICICI Pru Top 100.

I want to invest ₹50,000 in ELSS. I prefer to make a lump-sum payment every year so that I can get a tax deduction under Section 80C. Please give your advice on which mutual funds I should invest in. Also, will there be tax exemption on the gains made in these equity-linked saving schemes?


Although systematic investments are suggested for exposure to mutual funds, the case of tax-saving schemes is a bit different. Since each instalment is locked in for a period of three years, it is advisable to make lump-sum investments.

You can split the amount and invest in two different schemes. Invest ₹25,000 each in Reliance Tax Saver and Franklin India Taxshield. While the former has done extremely well over the last three-four years, the latter has been a proven performer for over 15 years. Coming to the tax part, all the capital gains you make in your tax saving mutual funds is tax-free, provided that it is held for a period of at least three years. If an early exit is done, all tax deductions taken during current and previous years will have to be reversed.

Consider investing in diversified equity schemes over the long-term. Avenues such as PPF and NSC also allow tax deductions and assured returns. You can invest a portion of your surplus in tax-saving funds.

I am 39 and have no exposure to the equity market. I want to invest ₹20,000 every month through the systematic investment plan (SIP) route for 20 years. I can take low to medium risks. Which funds should I invest in and what is the return that I can expect?

Shreekanth K

It is surprising that despite being so many years into your career, you have still not taken exposure to equity. But as always, ‘better late than never’.

You have a fairly long investment horizon and have set aside a reasonably healthy sum for monthly investments.

Given that you are open to taking only low to medium risks, there is limited scope for building an aggressive portfolio. For a long investment horizon like yours, higher risks — such as exposure to mid-cap schemes — can be taken as it is expected to pay off well over such timeframes.

Given your risk appetite, a portfolio comprising of large- and select multi-cap funds would be suitable. Split ₹20,000 as follows: invest ₹4,000 each in Quantum Long Term Equity, ICICI Pru Top 100 and UTI Equity. These are large-cap funds with proven track records. Park ₹4,000 each in Birla Sun Life Top 100 and Franklin India Flexi-Cap. The former is a fund with a large-cap slant, though it does take some mid-cap exposure, while the latter is a multi-cap scheme.

Review the schemes in your portfolio periodically, take corrective action if necessary, and rebalance. Try to build a balanced portfolio with investments in debt, gold and real estate.

Since equity funds are market-linked products, no assurance can be given on returns. But over the long term, equity schemes would beat inflation and help meet your financial targets. The best funds have given returns of over 20 per cent annually over the past 20 years.

Published on November 09, 2014

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