Mutual Funds

Avoid theme funds for long-term investments

K. VENKATASUBRAMANIAN | Updated on March 10, 2018

My monthly investments through the SIP mode are as follows: Rs. 2000 each in Birla Sunlife Frontline Equity, Reliance Regular Savings Equity, HDFC Midcap Opportunities, Reliance Equity Opportunities and ICICI Pru Focused Bluechip Equity. Of these, the performance of Reliance RSF Equity, in which I have been investing since 2010, has been very unsatisfactory. Would it be safer for me to discontinue the SIP and redeem all the units in Reliance RSF Equity? I plan to go in for a new SIP investment either in ICICI Pru Equity Volatility Advantage (or) Quantum Long Term Equity. Which of these two funds would you recommend? Please advise.

Srinivas A.R.

You have chosen a fairly good set of funds for your investments. Of course, there is scope for some mild rebalancing.

As you have stated, Reliance Regular Savings Equity may not have been a chart topper, but it is a reasonably steady performer.

Compared to the other funds in your portfolio, this scheme has been an under-performer. So, you can split the Rs 2000 in this fund across other schemes that you are investing in as follows: add another Rs 1000 each in Birla Sun Life Frontline Equity and ICIC Pru Focused Bluechip. Since you already have a mid-cap fund in HDFC Midcap Opportunities and Reliance Equity Opportunities too holds a significant amount of such stocks, increasing investment in large-caps will lend greater stability to your portfolio.

Your current portfolio is sufficiently diversified, so you need not add any new funds to your portfolio. Consider increasing investments in existing funds proportionately.

If you are still keen on adding another scheme, we would suggest Quantum Long Term Equity.

* * *

I am 30 years old and have been investing Rs 20,000 every month through the SIP mode in the following funds:

1. DSP Blackrock Top 100 Equity – Rs 3000

2. ICICI Prudential Focused Bluechip Equity – Rs 2000

3. Fidelity Equity Fund (now L&T) – Rs 2000

4. IDFC Premier Equity Fund – Rs 5000

5. ICICI Prudential Discovery – Rs 3000

6. HDFC Equity – Rs 3000

7. DSP Blackrock TIGER – Rs 2000

My risk appetite is medium to high and I intend to stay invested for a period of at least 10 years during which I’d like to accumulate Rs 75 lakh.

Could you please advise if my selection of funds and the allocation are suitable or if I should incorporate changes to my mutual fund holdings.

Harish

Before we go on to analyse your portfolio, a word on your financial target is necessary.

If you invest Rs 20,000 every month for 10 years and need Rs 75 lakh at the end of this period, your portfolio returns should be 20 per cent annually, which may be a stiff task.

So, for the same amount and a more reasonable expectation of 15 per cent, you will be able to reach the target in 12 years.

Coming to your portfolio, it needs some shuffling and reallocation of money across schemes.

You can exit DSPBR TIGER, which is a theme fund and may not be suitable for long term portfolio building purposes.

Since you already have HDFC Equity in your portfolio, you can exit L&T Equity, though it has been a steady performer, as there would be unnecessary portfolio overlap.

Since you have stated that your risk appetite is medium to high, we would be suggesting a portfolio that is a bit high on mid-caps.

Now spread Rs 20,000 across schemes as follows: invest Rs 5000 each in HDFC Equity and IDFC Premier Equity, which are multi-cap and mid-cap funds respectively. Park Rs 3000 each in ICICI Pru Focused Bluechip and DSPBR Top 100 Equity and Rs 4000 in ICICI Pru Discovery.

Review your portfolio periodically to take corrective action in the form of rebalancing or weeding out underperformers.

Also, try to build a balanced portfolio by investing in debt options (FDs, PPF), gold and real estate, as and when your surplus improves.

* * *

I have been investing in the following schemes for the last 6 months:

1) HDFC balanced fund – Rs. 1000 per month

2) IDFC premier equity – Rs. 2000 per month

3) Quantum long-term equity fund – Rs 1000 per month

4) Reliance Gold Savings fund – Rs 1000 per month

I plan to continue the investment for the next 10 years. Please advice whether the investments are on the right track, or if I should opt for different schemes.

Deepthi

You have spread Rs 5000 across too many funds. For this amount, investments in two schemes would do.

Invest Rs 2500 each in Quantum Long Term Equity and IDFC Premier Equity.

If you have a low risk appetite, invest Rs 2000 each in these two funds and park the balance in HDFC Balanced.

As and when your surplus improves, invest in gold funds and also try to increase allocation to the schemes mentioned earlier.

Published on May 25, 2013

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