Mutual Funds

Fund Talk: Have separate portfolios for different goals

VIDYA BALA | Updated on June 02, 2012

fund talk

Book profits in years of exceptional market rallies and invest it in debt.

I am 36 years old, working in a private company. My wife is a homemaker aged 32. I have a two-and-a-half year-old daughter. My monthly income is Rs 75,000. I have an EMI of Rs 5,000 running on my car loan for another five years. I have a term policy of Rs 25 lakh and a SIP for Rs 11,500 a month across 11 funds.

I invested around Rs 40 lakh in real-estate. I have physical gold worth Rs 5 lakh. From January 2012, I have been investing in gold ETFs by buying 1 gram every month. My goal is to build Rs 50 lakh for my child's education when she turns 18 and Rs 10 lakh for her marriage at the age of 25. I also need Rs 3 crore for my retirement at 65. Please assess my portfolio and suggest changes. I want an aggressive portfolio.

I hold DSP BR Top 100, HDFC Prudence, HDFC Top 200, ICICI Pru Infrastructure, Magnum Contra, Reliance Diversified Power Sector, Reliance Growth, Reliance Regular Savings Equity, SBI Gold, Sundaram Select Midcap and Sundaram Tax Saver.

Anil Kumar

You have neatly set yourself three financial goals and the time frame to achieve them. But it will also help if you hold separate investment portfolios to reach the goals.

You may be an aggressive investor and therefore hold sector funds. But you should also be able to track the sector trends and time your entry and exit. Reliance Diversified Power and ICICI Pru Infrastructure have both underperformed over your holding period. A SIP in the former would have resulted in a capital loss of 25 per cent.

It appears that you have not spotted the prolonged underperformance in power and related capital good industries. We suggest you exit these two funds.

Magnum Contra and Reliance Growth's performance have been lacklustre. Consider selling them. If you can take the volatile performance in Reliance Regular Savings Equity, retain it. Exit the units you invested in Sundaram Tax Saver in February 2009. The additional units bought in 2011 will have to be held until the lock-in is over.

You have not disclosed the quantum of investments in individual funds. So , we are unable to calculate the funds you will receive from selling some of the schemes and also how much will be left in the existing schemes. We will build your portfolio based on SIPs starting now.

Education portfolio

Retain DSP BR 100 in the education portfolio. Keep the SIP at Rs 2,000 a month. Switch from HDFC Prudence to HDFC Children's Gift- Investment Plan and have a SIP of Rs 1,500 a month.

This equity-oriented fund with some debt will be a safe bet to build an education portfolio. Invest Rs 2,100 in ICICI Pru Discovery, a value-focussed fund with a significant mid cap bias.

Over the next 14-15 years, if this portfolio delivers 18 per cent per annum, you should be able to achieve your goals. If it doesn't, don't fear. Invest the proceeds from sale of schemes we mentioned above in a 10-year NSC now. At 8.9 per cent per annum, the interest rates are attractive now, if viewed with the tax break.

After 10 years invest this again in a three or five-year fixed deposit or a five-year NSC, based on the interest rates prevailing then.

Marriage portfolio

You have mentioned that you need Rs 10 lakh for marriage. We reckon you meant it at today's value. In 22 years , if inflation reigns at 7 per cent a year, you will need Rs 44 lakh. So, we will assume this as your goal. You need to invest Rs 1,200 a month for 22 years to achieve this, if your investments can deliver 18 per cent compounded annually.

Run SIPs in HDFC Top 200 and IDFC Premier Equity (a mid-cap fund) in equal proportions. Exposure to the mid-cap fund is high. Investing in one gram of gold will entail more money. Fix a small amount of, say, Rs 500 or so and invest through SIPs. Use the SIP option in SBI Gold instead of buying ETFs.

Retirement portfolio

Of the Rs 11,500 you can currently spare for SIPs, you will have Rs 4,200 a month left for your retirement portfolio. Invest Rs 2,000 in Quantum Long Term Equity, Rs 1,200 in DSP BR Microcap and Rs 1,000 in Reliance Regular Savings Equity. Please watch out for the performance of the last two mentioned funds.

If they underperform over the next three years, switch to either IDFC Premier Equity or ICICI Pru Discovery (both of which you will hold in the other portfolios). Invest this for 27 years from now and shift to safer debt avenues a couple of years before you turn 65.

After five years, when you are done with your car loan, divert the EMI of Rs 5,000 plus an additional Rs 1,000 to the retirement portfolio. Invest Rs 2,500 more in Quantum Long Term Equity and another Rs 3,500 in UTI Opportunities.

Given the long time frame, we are assuming a return of 15 per cent. If markets become very mature, the ability to generate higher returns may diminish a bit.

In all this, in years of any exceptional market rallies, always sweep some money by booking profits and invest in safe debt options. Consider upping your term insurance to at least Rs 50 lakh.

Published on June 02, 2012

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