I am a salaried employee, 32 years old, with a monthly salary of Rs 45,000. I don't have any dependants. I have invested Rs 30,000 in Public Provident Fund. I would like to invest Rs 12,000 every month in mutual funds for a period of minimum 10 years through a systematic investment plan.

I am interested in the following funds: Canara Robeco Equity Diversified Fund, UTI Opportunities, HDFC Mid Cap Opportunities, IDFC Premier Equity, Quantum Long Term Equity, HDFC Equity and HDFC Prudence.

Though Canara Robeco Equity Diversified and UTI Opportunities are performing well, their fund managers have changed. Can I go ahead with these?

Is Quantum Long Term Equity safe as it is not available with banks such as HDFC Bank or ICICI Bank, where I can apply online?

Murali

Your proposed investment of Rs 12,000 a month in equity funds appears high. Assuming your living expenses and other commitments amount to Rs 30,000, your savings would be Rs 15,000 per month.

Parking as much as Rs 12,000 out of this in equity funds may leave you with little surplus to meet emergencies, contingencies and medical expenses.

Your investments in public and employee provident fund will take care of the ‘safe' portion of your portfolio.

But remember that they are not easy to withdraw and therefore may not come in handy in case of an emergency. Therefore, we recommend that you take on a health insurance plan to cover your medical expenses and also set aside about Rs 2 lakh (six months' expenses) in a liquid fund or short-term debt fund.

You can draw on this to meet any emergencies. You can build up this sum by investing Rs 5,000 a month over the next three years.

Coming to your equity fund choices, well done! You have selected funds with a good long-term track record and are also tracking them quite closely. Having said this, our response to your query is as follows:

The number of funds you propose to invest in, seems to be a bit high. You may not need to invest in seven different funds to build a long-term corpus. You can make do with four-five funds.

Of the list you provided, HDFC Prudence, Quantum Long Term, IDFC Premier Equity are funds we would shortlist, given your risk profile.

We also suggest adding a passive fund such as Goldman Sachs CNX 500 Fund, to make sure you reduce the risk of your active funds lagging the market.

Change in fund manager

Yes, fund manager changes do merit notice. Both the funds you mention have undergone such changes.

While Mr Saumendra Nath Lahiri has taken over management of the Canara Robeco Equity Diversified fund from April 2011, Mr Anoop Bhaskar is managing UTI Opportunities since July 2011.

However, there is no cause for worry on both these changes. Both are seasoned managers and manage other equity funds which have a good track record.

Studying the performance of these two funds before and after the fund manager change also shows that they have seen no slippage in performance after the changes.

On the contrary, both funds have improved their performance in one-year rankings. They, therefore, remain good investment options.

Fund distribution

Equity funds, as a class, aren't ‘safe', in the sense that their returns are market-linked and there is a risk of capital loss.

However, if you are referring to the governance aspect, that is, whether the fund house is of good repute, Quantum Long Term Equity is an excellent choice for investors. It is as good an option as other funds we have mentioned.

With a five-year return of 11 per cent, three-year return of 25 per cent and a decline of 4 per cent in one year (much lower than the Sensex), Quantum Long Term Equity is well suited to any conservative investor.

In our view, the decision on whether to invest in an equity fund should be taken based on its performance, objectives and risk profile. Who distributes the fund has little to do with it. The menu of equity funds that SBI, HDFC Bank or ICICI Bank offer to their customers depends on their own marketing tie-ups.

Banks distribute mutual fund products based on their marketing alliances with specific fund houses. Now, Quantum Mutual Fund, from the outset, has pursued a direct sales model, where it sells products directly to investors, rather than through third party distributors.

It adopted this model at the time of its launch in order to avoid paying entry loads or upfront commissions to distributors and in order to avoid mis-selling.

Quantum Mutual has centres in all metros, Mumbai, New Delhi, Chennai and Kolkata, as well as in cities such as Ahmadabad, Pune and Hyderabad.

You can check their web site for this and approach them. Certain online service providers such as fundsindia and Fundsupermart also offer Quantum Mutual's schemes through their online facility.

(Queries may be e-mailed to mf@thehindu.co.in )

         

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