Mutual Funds

Your fund portfolio

K Venkatasubramanian | Updated on June 22, 2014

I wish to invest ₹5,000 every month in my son’s name. He is in the final year of his graduation. I plan to take the mutual fund route. I would like to accumulate ₹10 lakh in five years. Is this achievable or should I invest more? I have also opened a PPF account in his name with a monthly contribution of ₹1,000. Since he is in his twenties, I plan to take a term insurance policy in his name. Would that be a good move?

- KS Nageshwara Rao

You have realised that investing directly in the stock market is fraught with risks and also requires a fair degree of monitoring, all of which is not easy for a person with a regular job. An element of skill and resourcefulness, too, is required in picking winners, which may be acquired only over a fairly long period of time.

Mutual funds are, thus, the most suitable alternative for many retail investors.

Coming to your query, it is not necessary to invest in your son’s name. You can do so in your own name for all goals pertaining to your son as he is a major all set to complete his graduation. No special purpose would be served by investing in his name.

Now, if you invest ₹5,000 every month for five years and the returns are 12 per cent annually, you would be able to accumulate a little over ₹4 lakh in this period.

So, to reach the target of ₹10 lakh, you will need to invest ₹12,500 every month. Alternately, if you can push the time horizon to eight years, you can accomplish it by investing an average of ₹6,500 every month.

Since you have said that there are no specific goals, the ideal course of action would be to fix a financial target with a 10-year timeline. That way, deciding on appropriate schemes for your portfolio would be more purposeful.

Assuming that you can invest ₹6,500 currently, split it as follows: park ₹4,000 in Birla Sun Life Top 100 and the balance ₹2,500 in ICICI Pru Value Discovery. These are a large- and a mid-cap fund, respectively, and have proven long-term track records. As your surplus increases, you can consider adding more schemes to your portfolio.

You need not take any term cover for your son as he is yet to start earning and has no liabilities.

I am 40 and work as an assistant professor. My monthly gross earnings are ₹93,000. I have made the following investments in mutual funds through the SIP route: ₹5,000 in Canara Robeco Large Cap+ for six years, starting from October 2013 and ₹10,000 in Quantum Long Term Equity for six years from December last year. Besides, I also park ₹1,000 every month in an RD. There is also a contribution to PF (employer’s and mine) to the tune of ₹15,000. Are my investments appropriate?

- Aruna Ranganath K

You have done the right thing by investing a healthy sum every month in mutual funds.

But for the ₹15,000 you are parking every month, you can have four or five schemes in your portfolio instead of just two. This gives you the benefit of diversifying across fund houses and their investment styles.

Your current investment suggests that you would prefer a stable large-cap portfolio and would not like to take high risks.

The other point to note would be the tenure for which you have decided to invest. You have indicated a period of six years. If there are any specific financial goals that you wish to reach by that time, you can direct this investment toward the target. If not, it would be advisable to remain invested for 7-10 years for desirable benefits.

You could split ₹15,000 as follows: Park ₹4,000 each in Quantum Long Term Equity and ICICI Pru Top 100. These are two quality large-cap names with proven records. Canara Robeco Large Cap+ has delivered reasonable performance but has lagged several peers in the large-cap space. So stop SIPs in this scheme.

Park ₹3,500 in UTI Equity, a proven large-cap name. The balance ₹3,500 could be parked in Franklin India Flexicap, a multi-cap fund with a track record of above-average returns over the long term.

Review the performance of the schemes in your portfolio every year and take corrective action, if necessary.

Send your queries to >

Published on June 22, 2014

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

This article is closed for comments.
Please Email the Editor