Mutual Funds

Build your corpus based on long-term needs

K. VENKATASUBRAMANIAN | Updated on March 10, 2018

I am 29 years old and work in a public sector undertaking. I want to invest Rs 15,000 every month through the SIP (systematic investment plan) mode. My risk appetite is high.

I also hold an insurance policy from LIC and have invested only in the EPF of my company. Kindly suggest some portfolios for starting investments in mutual funds. My investment horizon is 20 years.

Ashok Kumar

It is nice to note that you are starting on long-term investment quite early into your career. You haven’t stated your goals, but given that your time horizon is 20 years there is sufficient scope for building a substantial corpus over this time, especially as your risk appetite is high.

Since you are quite young, a portfolio heavy on equity or equity mutual funds is appropriate. As your surplus increases over the years, invest in PPF, RDs, gold and real estate as well to diversify and to maintain a balanced portfolio.

You have mentioned that you have an insurance policy. We presume it to be an endowment policy or a unit linked plan, both of which are expensive products and may not serve your long-term needs. But keep paying the premium till the lock-in period and later withdraw the amount. Take a term cover and a medical policy.

Coming to your query about starting SIPs in mutual funds, split your intended investment amount as follows:

Park Rs 4,000 each in IDFC Premier Equity and ICICI Pru Discovery — two mid-cap funds with a strong long-term track record. Invest Rs 3,500 each in Quantum Long-term Equity and Franklin India Bluechip to give stability to your portfolio with sufficient large-cap investments.

Review your investments regularly, say, once every year and carry out modifications, if necessary and to exit prolonged underperformers. For example, as you grow older, you may want to reduce mid-caps in your portfolio and opt for stable large-cap funds.

Our suggestion would be to have a target corpus based on your long-term requirements. This would help you channelise your savings appropriately. If you reach your intended level of accumulation ahead of time, move over the proceeds to safe debt options.

*** I am running monthly SIPs of Rs 3,000 each in Franklin India Bluechip, IDFC Premier Equity and Quantum Long Term Equity. Also, I have been investing Rs 2,000 each in DSPBR Top100, ICICI Pru Discovery, Sundaram Select Midcap and HDFC Midcap Opportunities. All my goals are over the long term — more than 10 years into the future.

1. Is this portfolio appropriate for my requirement?

2. I would be having an additional Rs 35,000 to invest, as my home loan is set to be repaid shortly. What is the best way to deploy it in equity funds? I have term insurance and other such debt options.

Giri

You have mentioned that you have a term cover and other ‘such’ debt options. To clarify, a term cover is not a debt investment.

It is just a risk cover, where you pay premiums and your nominee would get the sum assured in case of any unfortunate event. You will not get any returns from it.

Now, you will be having Rs 52,000 to invest in mutual funds every month, which is a pretty large sum.

We do hope that you have sufficient investments in EPF, PPF, RDs, bonds etc., and also have reasonable emergency funds set aside.

In case you haven’t, we have still suggested a portfolio with reasonable debt component in it. That you will have repaid your home loan gives some comfort, which means that you will also also not have to direct any money towards real estate.

Coming to your portfolio, we suggest dropping DSPBR Top 100, Sundaram Select Midcap and HDFC Mid-cap Opportunities. These are quality funds but you already have schemes with similar portfolios.

Spread Rs 52,000 as follows: invest Rs 10,000 each in Franklin India Bluechip, Quantum Long-term Equity. Add Birla Sun Life Dynamic Bond and UTI Opportunities and park Rs 10,000 each in the schemes. Invest Rs 4,000 each in IDFC Premier Equity, ICICI Pru Discovery and HDFC Prudence.

We have suggested a relatively moderate risk portfolio as the amounts involved are pretty large. It is a large-cap dominated portfolio, with significant weightage given to debt avenues as well.

Review your portfolio once every year and weed out underperformers. Book profits in case of abnormal gains in market rallies and move the proceeds to safer investment options.

Published on June 22, 2013

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