Fund Talk: Invest in gold for diversification

I would like to know whether continuing with a SIP (systematic investment plan) in Birla Sun Life Frontline Equity fund is worth it.

I am running a SIP on this fund for an amount of Rs 3,000 for the last two years.

I am also running SIPs in Quantum Long Term Equity, HDFC Top 200, IDFC Premiere Equity and UTI Opportunities.

All these funds, except Birla Sun Life Frontline Equity, seem to be doing well. I would like your advice on the action I must take with my funds.

Subhash Singh You have chosen a good set of funds while building your portfolio. Two of the funds that you hold (UTI Opportunities and Quantum Long Term Equity) are multi-cap funds, though with a strong large-cap bias. HDFC Top 200 and IDFC Premier Equity are large- and mid-cap funds, respectively. Your portfolio is well balanced.

Birla Sun Life Frontline Equity too is a large-cap oriented fund though it takes select exposure to mid-cap stocks.

The fund has a strong track record in its over 10 years in existence and has mostly been very consistent.

There seems to have been a mistake in calculating returns. A SIP in Birla Sun Life Frontline Equity for the past two years (January 2011-December 2012) would have yielded you a return of 16.1 per cent, much higher than the markets and also higher than all the other funds in your portfolio except IDFC Premier Equity. It did have a turbulent 2010 and a rather indifferent run for much of 2011, but its fortunes have revived significantly over the past one year.

You should continue your SIP in the fund.

*** I am 33 years old. I have started a SIP in a few funds. Please let me know if these are good funds to invest in. I would like to invest another Rs 5,000 in 2-3 mutual funds. I would invest for a minimum of 5-7 years. Please suggest a few options. Also, I would like your opinion on investing in gold.

My investments are in:

a) ICICI Pru Focused Bluechip – Rs 3,000; b)HDFC Midcap Opportunities - Rs 2,000; c)Mirae Asset India Opportunities - Rs 2,500; d) SBI Emerging Business - Rs 1,500; e)UTI opportunities - Rs 2,500; f)IDFC Premier equity Plan A - Rs 2,500

Abhi You have made the right decision to start SIPs in mutual funds and also to continue investing for the next 5-7 years.

But there are some points you need to note before we suggest changes to your portfolio.

You have spread Rs 14,000 that you are currently investing across too many funds. Also, you have indicated your intention of wanting to invest another Rs 5,000 across 2-3 more funds. So ideally, you must spread Rs 19,000 across not more than five funds as there would be duplication in portfolio and also no specific focus.

You have also invested in three mid-cap funds, which may be a bit too many.

Spread Rs 19,000 as follows:

Invest Rs 4,250 each in ICICI Pru Focussed Bluechip, UTI Opportunities, HDFC Equity and IDFC Premier Equity. This would give you exposure to funds across market capitalisation. You can exit the other funds. Although SBI Emerging Business and HDFC Midcap Opportunities have done well over the past few years, IDFC Premier Equity has a stronger track record over the long term.

Park Rs 2,000 in either a gold ETF or Reliance Gold Savings Fund.

Investing in gold is a good idea for the purpose of diversification and also possibly bettering inflation. But it must not account for more than 10-15 per cent of your portfolio.

We hope you have made adequate investments in other asset classes such as debt (FDs, RDs, bonds etc) and real-estate.

Review the performance of the funds in your portfolio once every year and take corrective action, if necessary.

*** My daughter is 21 and has joined an IT company at a salary of Rs 15,000, of which the EPF is Rs 500. She has no specific goals except to create a corpus for the long term. She can save up to Rs 7,000 per month. Please advise on investment options such as mutual funds, etc. Her risk appetite is moderate.

M.Giridhar It is nice to note that your daughter wants to start saving immediately after joining the workforce.

Since she is new to investments and her risk appetite is also moderate, we suggest large-cap and balanced funds as a good way to start.

She can invest Rs 2,500 each in HDFC Balanced and Quantum Long Term Equity.

The balance Rs 2,000 can be invested in PPF (public provident fund), which is an excellent debt option with attractive returns and also tax benefits.

Over time, as she gets a reasonable hold on investing in mutual funds and in other options, you can diversify across more options and schemes.

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