Mutual Funds

Your Fund Portfolio

K Venkatasubramanian | Updated on February 09, 2014

I have invested in Canara Robeco Equity Tax Saver, HDFC Tax Saver, ICICI Pru Tax Plan and SBI Magnum Tax Saver. Should I hold on to these funds or sell them?

- Kavindra Salunke

While investing in tax saving mutual funds is a good idea, you have gone overboard by investing in too many schemes. You need only one, or at the most two, tax saving schemes for your portfolio. You can retain ICICI Pru Tax Plan, which is the best among the funds you have chosen, and exit the rest.

Alternatively, you can use the proceeds from the sale of the other three funds and plough it into ICICI Pru Tax Plan. This scheme has delivered extremely well over the past three-four years and has been consistent. Please note that you can exit the other schemes only after the lock-in period of three years. In case you had invested through the systematic investment plan (SIP) route, each instalment is locked in for three years.

Since 2006, I have been investing through the SIP mode in Reliance Growth and ICICI Prudential Index Plan. Also, I have been investing through the SIP route in IDFC Premier Equity and Birla India Gen Next from November 2011 and June 2013, respectively. I am planning to discontinue the SIPs in Reliance Growth and Prudential Index Plan. My goal is to build a corpus of ₹2 crore in 20 years and I can invest ₹20,000 per month. I have a high risk appetite. Please advise me on the allocation I need to make in different schemes. I am 31.

- Rajesh

Although you have been investing for quite a long time in mutual funds, your approach seems a tad unorganised. Also, there appears to be no focus to most of the fund choices that you have made.

It is good to note, however, that you are now ready for systematic investments for the long term, with specific allocations every month. By fixing a target corpus and giving yourself 20 years to achieve it, you have made things easier for yourself. A high risk appetite is definitely an added bonus to help you achieve significant risk-adjusted returns.

Coming to your decision to stop investments in Reliance Growth and ICICI Pru Index Plan, it is a good move. Reliance Growth has been having an indifferent run over the past three-four years and so you can sell the units of the fund.

In the long run, diversified equity funds have a tendency to record superior performance compared with index schemes. In this light, you can also exit ICICI Pru Index Plan.

You can also exit theme-based funds such as Birla Sun Life Gen Next, though it has had a good run in the past couple of years, as theme-based schemes may not be suitable for long-term goals. There would also be a certain element of timing required in entry and exit.

Diversified equity funds that suit your risk appetite and time horizon may be the best way for you to accumulate the corpus that you intend to.

To achieve your goal, the returns required annually is a little over 12 per cent, which is fairly reasonable and can be generated by taking medium risks. Of course, you do have a high risk appetite, so a more aggressive portfolio is being suggested.

Split ₹20,000 as follows: Invest ₹5,000 each in Quantum Long Term Equity and ICICI Pru Focused Bluechip Equity. These are stable large-cap oriented funds with excellent long-term track record.

Park ₹3,000 each in HDFC Mid-cap Opportunities and Reliance Equity Opportunities, a multi-cap scheme, as both these funds have delivered very well over the years. Invest the balance ₹4,000 in IDFC Premier Equity, a quality mid-cap fund that has delivered top-quartile returns consistently.

The suggested portfolio has high exposure to mid-cap funds due to the fact that your investment horizon is 20 years and given that you can stomach high risks.

On a risk-adjusted basis, you are more likely to be rewarded by quality mid-cap funds over the long-term. Review the schemes in your portfolio once every year and take corrective action, if necessary. Also, try to build a balanced portfolio with investments in debt (PPF, NSC, FDs, RDs and tax-free bonds, among others), gold and if possible real estate.

If you reach your target ahead of time, do not hesitate to sell the mutual fund units and move the proceeds to safer debt avenues.

Published on February 09, 2014

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