Mutual Funds

Fund Talk

K. Venkatasubramanian | Updated on August 20, 2011


A portfolio needs to be balanced and diversified across asset classes.

I am 35 years and I invest through SIPs for my long-term investment and retirement. I increase the amounts each year based on my salary hikes. I invest only in equity as the debt portion is covered by my provident fund contributions. I have SIPs of Rs 7,000 a month each in Fidelity Equity, HDFC Top 200 and DSPBR Equity. I invest Rs 5,000 and Rs 4,000 in Birla Sun Life Frontline Equity and DSPBR Top 100 respectively. I have invested in the following SIPs — these are for the long term for my daughter's education and marriage — Rs 3,000 a month in Quantum Long-Term Equity and Rs 3,000 a month in IDFC Premier Equity.

Do I need to modify my portfolio? Is the above savings sufficient for a retirement corpus of about Rs 2-3 crore and to fund my daughter's education and marriage?

— Sameer K.R.

It is nice to note that you have taken early steps in securing your retirement life and saving up for your daughter's education and marriage. All the right ingredients seem to be there with goals, directed investments and a sufficiently long time horizon.

This said, a portfolio still needs to be balanced and diversified across asset classes such as equity, debt, gold and if possible real estate. Given your age, we would suggest that 65-70 per cent of your investments be directed towards equity, 20-25 per cent in debt and 10 per cent in gold. The equity portion may slowly be reduced and shifted to safer avenues of debt as you near your goal – whether retirement or education.

Investments in provident fund alone may not suffice for debt investments unless a 20-25 per cent of your savings is in this. When your salary increases, save up and invest in bank fixed deposits or corporate deposits of top rated companies taking benefit of the high interest rate. Ensure you get a post-tax yield of 9 per cent on deposits; failing which it is not worthwhile. You can also diversify in to PPF, which from being practically risk-free also offers superior yields given the tax benefits.

Coming to your portfolio of funds, all of them are of fairly high calibre and have demonstrated outperformance over broad markets over the last 5-10 years. But there can still be some tweaking to make your portfolio more robust.

Continue your SIPs in HDFC Top 200, Fidelity Equity and DSP BR Top 100. All these are large-cap stock focussed funds and have delivered superior returns. equity. Exit Birla Sun Life Frontline Equity and DSP BR Equity as they been a underperforming peers over one- and three-year periods.

Considering the long investment horizon (20 years, assuming you will retire at 55), you can perk up the risk profile of your portfolio and start SIPs in mid-cap funds such as IDFC Premier Equity and HDFC Mid-Cap Opportunities. These funds have been top performers over the last 4-6 years.

Your investments of Rs 30,000 as SIPs per month if continued for 20 years will comfortably give you a corpus of Rs 3 crore, if the portfolio earns a conservative 12 per cent returns per annum.

Most funds suggested above have delivered well over 15 per cent returns per annum over longer time frames. However, we reiterate that you must also add debt options to make your portfolio more blended and less risky. Also, whether the Rs 3 crore will be enough for your retirement depends on your lifestyle, monthly expenses and provisioning for contingencies.

You have not stated your daughter's age, so we assume she is under three years.

Child plan

You can consider starting a SIP in HDFC Children's Gift Fund – Investment Plan. Investments in this equity-oriented balanced fund can be done on behalf of a minor. The fund has a lock-in period of three years or until the child turns 18, whichever is later. The fund has a track record of over 10 years and has delivered compounded annual returns of close to 19 per cent. This is also a relatively safe bet compared with pure equity schemes. You can invest Rs 4,000 a month in this fund. At a 12 per cent return, you will have Rs 20 lakh at the end of 15 years.

You can continue your SIPs in Quantum Long Term Equity at Rs 2,000 a month. A 12 per cent annual return would fetch you Rs 20 lakh.

Please note that you have to sweep profits at least 6 months to a year prior to your goal.

In case you are left with a surplus, you can buy gold ETFs such as those available from the house of Benchmark Mutual (Now Goldman Sachs AMC).

Queries may be e-mailed to >, or sent by post to Business Line, 859- 860, Anna Salai, Chennai 600002.

Published on August 20, 2011

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