I have SIPs in three funds from HDFC Mutual. They are: Rs 1,500 a month each in HDFC Top 200 and HDFC Sensex Plus and Rs 1,000 in HDFC Mid-cap Opportunities.

I’m 26 and my monthly income is Rs 22,000. I have investments in gold through a jewellery shop’s chit fund scheme (Rs 1,000 a month for 15 months). Is it risky to hold all funds in a single fund house? If so, what should I do now? Can you suggest any other equity funds with other fund houses? 

I plan to spend about Rs 2 lakh for my sister’s marriage, which is likely in the next three-four years. Will my existing investments be enough for this or should I increase my SIP amount? I have SIPs running for 60 months for all the funds I have mentioned above. I have a six-month old child for whom I plan to start a children's fund for his education. Which one should I go for?

B. Krishnaswami

In general, it is not very prudent to hold all your funds in a single fund house. There are a few reasons for this. By sticking to a single house, you may lose out on the benefit of varied styles of investing that different fund houses bring to the table.

Besides, it may be possible that the same fund manager manages a few of the funds you hold. Hence, there could be some duplicity in strategies and even stock holdings. Also, in the event of a fund house being sold off, your entire portfolio will have to face uncertainty as to whether the new management will deliver.

Having said that, given the current value of your investments and that you have only three funds in all, your exposure is not alarming. HDFC as a fund house has also built its reputation well. What you can do, though, is perhaps hold at least one non-HDFC fund for now. Consider starting SIPs in ICICI Pru Discovery by exiting HDFC Mid-Cap Opportunities. The latter has done exceedingly well. We are suggesting the change only to diversify your portfolio.

Portfolio

You have not mentioned when you started your SIPs. Lacking this information, we will have to assume that the SIPs commenced recently. A time frame of three to four years is rather short for building wealth, especially considering how volatile markets have been post 2007.

We will assume that you can earn a compounded annual return of 12 per cent in the next three years in your index plus plan and HDFC Top 200 and 15 per cent in ICICI Pru Discovery.

If the economy and the markets hopefully revive over this period, the returns can be much more. You will need to invest Rs 600 more to achieve Rs 2 lakh in three years, if your portfolio delivers the above returns. Invest this additional amount in HDFC Top 200. As and when you have surplus accumulate them and invest in 1-2 year bank deposits as well. Move to safer debt avenues systematically after three years if you want the money at the end of the fourth year. Remember, most funds levy an exit load if you withdraw within a year. Hence, your last SIP must remain invested for a year, if you wish to avoid this load.

You can invest in the same funds for your child’s education as well. Consider adding UTI Opportunities additionally.

You don’t have to necessarily hold a child-care fund to build for your child's education. Systematic investment over 15-20 years should deliver reasonable returns. But set your self a target. Just to give an example, if you need Rs 25 lakh 17 years from now for your child's college education, then you need to save and invest at least Rs 4,000 a month over the next 15 years, assuming your portfolio will deliver 15 per cent annually.

We hope you have chosen a reputed jeweller for the gold scheme. We are not taking this in to your investment portfolio as you may simply be buying some jewellery for personal use. If you wish to invest in gold, you can buy any of the gold fund-of-funds offered by fund houses such as Reliance or UTI. Ensure that not more than 10 per cent of your investment is exposed to gold.

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I've been investing in HDFC Top 200 since June 2011 (SIP of Rs 1,000 a month). I see that this fund’s rating has been reduced to a four star. What should be my course of action? I have an investment horizon of 15 years.

Sachin

There is little cause for concern about HDFC Top 200. While the ratings suggested by research web sites offer a good idea as to the performance of the fund, temporary blips can result in change in ratings. If you are a long-term investor, you should not worry too much about a four or five rating. The more important thing is to observe whether the fund is still comfortably ahead of its benchmark and peer-average. In this aspect HDFC Top 200 remains an outperformer.

Yes, over the last one year, the fund’s NAV fell a little more than some of the top funds. That was because HDFC Top 200 remained fully invested in equities even as many peer funds shifted some assets to cash and debt to contain declines. Remaining fully into equities will help the fund once there is a full-fledged rally.

By taking the SIP route, your portfolio dip is very minimal at about 2 per cent. This fall is lower than point-to-point returns of negative six per cent over the last one year for this fund. The fund’s risk-adjusted returns, measured by the sharpe ratio, still remain far higher than that of the category over a three-year period.

You will have reason to worry only if your fund underperforms its benchmark and also peers over two quarters or more.

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

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