Fund Talk: Don’t spread thin across schemes

I am 28 and have been investing in mutual funds through SIP mode for the past four years. I am currently investing through SIPs in the following funds: Franklin India Bluechip – Rs 2,000; DSP Blackrock Top 100 – Rs 1,000; IDFC Premier Equity – Rs 2,000; BSL Dynamic Bond Fund – Rs 2,500; L&T Equity Fund – Rs 1,000; Templeton India Pension Plan – Rs 2,000; Quantum Equity Fund – Rs 1,000 and Canara Robeco Equity Diversified – Rs 1,000.

Out of the above, L&T Equity fund, Franklin India Bluechip and DSPBR Top 100 are not performing well for the past one year. Should I continue investing in them? Please suggest suitable alternatives, if necessary. 

Rajaram R.

It is nice to note that you are investing a reasonable amount of money in mutual funds, that too so early into your career. But you must have specific financial goals and a definite time horizon so that the appropriate investment avenues can be chosen to realise your targets.

Coming to your portfolio, there are a few flaws in the way you have chosen to allocate amounts across schemes. You have spread your investment of Rs 12,500 across as many as eight schemes, which is much too high. For this amount, a maximum of 4-5 schemes would suffice.

Then, there is considerable overlap in the mandates of the funds you have chosen. It is important to choose funds with differing portfolios, but which fall within your risk appetite, so that meaningful capital appreciation can be achieved.

All the three funds that you have mentioned, especially Franklin India Bluechip, have a good long-term track record. Since you would be investing for the long-term, mild underperformance can be tolerated in the short-term, provided the scheme returns as much as the category’s average.

Spread your investment as follows: Invest Rs 4,000 each in Franklin India Bluechip and Quantum Long-Term Equity. These funds with a large-cap and multi-cap mandate are known to deliver top quartile returns over a 5-7 year timeframe. If you want a debt fund, invest Rs 2,000 in Birla Sun Life Dynamic Bond. Invest the balance Rs 2,500 in IDFC Premier Equity, a quality mid-cap fund.

DSPBR Top 100 and Canara Robeco Equity Diversified are quality funds. But you already have strong performers in Franklin India Bluechip and Quantum Long Term Equity, so you can exit these schemes. L&T Equity too can be exited.

Investing in diversified equity funds itself is a good way towards saving for your retirement. Templeton India Pension Plan is not the ideal vehicle where you should be putting money for your retirement kitty.

Instead opt for the national pension system (NPS) and invest there till you retire. It is a low-cost product, simple, and has delivered well over the past four years.

*** I am 25 and single. I have no plans to get married for the next two years. I work in a private sector firm and earn a net salary of Rs 28,000. I have an LIC policy where I invest Rs 5,000 every month. I am not in a position to exit this plan as I stand to lose substantially. I also have an IDBI Federal Wealthsurance Premier where Rs 25,000 is invested annually from 2012. I have another term insurance policy for Rs10 lakh from IDBI itself.

I have recurring deposits to the tune of Rs 6,500 per month and a fixed deposit of Rs 50,000.

As far as SIPs in mutual funds are concerned, I have been investing Rs 1,000 monthly in DSP BR Top 100 from 2011. Around Rs 3,000 from my salary is also invested in NPS (by my employer).

As you can see, I am pretty confused here. I wish to invest more in mutual funds (SIPs). Hence suggest a good way to manage my money. I have a fairly high risk appetite and can remain invested for long periods (10-25 years).

Remya M.G. Don’t worry about being confused! Most youngsters do puzzle over investments. But the good thing is that you have realised the mistake of combining investments and insurance quite early.

Traditional policies and unit linked plans are high-cost products and do not offer a high sum assured commensurate with your risk profile. Since you already have a term cover, enhance its value to Rs 50 lakh. Exit the traditional plan and ULIP once the minimum lock-in period is completed and required premiums are paid. This will enable you to have some surplus a few years hence.

Your savings plan seems quite good given that you are investing Rs 6,500 in a recurring deposit and also have some amount in an FD. If you can reduce your RD instalment to, say, Rs 3,500, you will have an immediate surplus of Rs 3,000. So, you will have Rs 4,000 for investment in monthly SIPs. Invest Rs 2,000 each in Franklin India Bluechip, instead of DSPBR Top 100, as the former is a stronger performer over the long term. Park the balance Rs 2,000 in ICICI Pru Discovery, a mid-cap fund that has delivered well.

When your salary increases over the years and when your surplus rises, you can consider more schemes.

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