Fund Talk

I invest in the following funds through monthly systematic investment plans:

In UTI Dividend Yield, UTI Master Value and HDFC Top 200, I park Rs 5,000 each. I invest Rs 3,000 in UTI Banking Sector and Rs 8,000 in HDFC Gold fund. Totally, I invest Rs 26,000 per month.

I will need the money after five years. Please suggest changes, if any, needed in this portfolio to maximise returns with “above average” risk.

A.K.Shukla A couple of observations need to be made looking at the choice of funds in your portfolio, before we suggest better alternatives.

Holding on to as many as three funds from the same fund house may not be an ideal strategy as it would deny you the opportunity to derive potentially higher returns from taking exposure to different fund houses. In your case you have three funds from UTI and two from HDFC.

With a fairly large SIP of Rs 26,000, you can take exposure to schemes from at least four fund houses.

Another key point is your investment of Rs 8,000 in a gold fund. That means that you are parking more than 30 per cent of your investments in a single commodity!

While gold has had a fantastic run over the past three-four years, its sustainability is not certain, especially if equity markets revive significantly.

Building a corpus means taking a balanced approach with exposure to equity, debt, gold and real-estate in appropriate proportions in accordance to your age, requirements and risk-appetite.

We suggest that you restrict gold to around 10 per cent of your portfolio.

Coming to the schemes that you own, you can retain UTI Dividend Yield, a predominantly large-cap fund. You can also retain HDFC Top 200. Invest Rs 6,000 each in these two funds.

UTI Master Value has a long history, but you can instead take exposure to a better performer in IDFC Premier Equity, where you can again park about Rs 6,000. Instead of UTI Banking, switch to Reliance Banking, which has delivered superior returns over the past five years and invest Rs 2,500 there.

Please note that we are suggesting a banking fund, assuming that you are bullish on its prospects and are willing to take the sector risk. If you aren't, switch to a diversified equity fund.

You can consider investing in gold through Goldman Sachs Gold ETF, given its strong track record and low expense ratio. Invest around Rs 2,500 in it.

Invest the balance Rs 3,000 in Quantum Long-term Equity, a multi-cap fund that has delivered steady returns consistently.

Review your funds periodically and weed out underperformers.

We note that you need the money in five years. So your return expectation needs to be tempered as SIPs that are run for longer periods of, say, 7-10 years may ensure higher returns. Around six months before the five years are completed, start moving your investments to safer debt options.

*** I work in a public sector company. I have 11 years of service and am investing in the following SIPs. In HDFC Top 200, Franklin Flexi Cap, DSPBR Top 100 Equity, UTI Dividend Yield and IDFC Premier Equity, I invest Rs 2,000 each. Totally I invest 10,000 per month.

I will need the money after 10 years. I have another surplus of Rs 5,000. Please suggest changes if any and also advice on where I can invest the Rs 5,000.

What precautions are to be taken if a fund is not performing as expected?

Bhaskar It is nice to note that you have given yourself a good 10 years to accumulate a corpus.

If you invest Rs 10,000 per month for the next 10 years, you will be able to accumulate a sum of over Rs 27 lakh, assuming your portfolio delivers 15 per cent returns.

You can park the surplus of Rs 5,000 in safer debt instruments. Lock into bank FDs or other debt options that offer high interest rate for longer tenures.

Coming to your portfolio, all the funds that you have chosen have performed quite well over the years. You can perhaps consider switching out from Franlin Flexi Cap alone to Quantum Long-term Equity, which is another multi-cap fund with a stronger track record.

Lastly, on precautions to be taken, review your funds periodically. If you find a fund consistently underperforming in many short rallies (of around 20 percent) or is not able to participate in a protracted market upswing, it is necessary to take some rebalancing action.

Not being able to contain downsides better than benchmark is also another reason to weed out funds.

Change of fund manager or takeover of the AMC by another should make you watch the fund performance even more closely.

The recommendations made in this column address the readers' query, based on their risk profile and requirement. They may not be applicable to all investors.

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