Fund Talk ; Invest in multiple assets for better returns

I have been investing Rs 2,000 every month through the SIP mode in HDFC Tax Saver for the last two years. The fund’s performance is not good compared with the other funds I hold: DSP BlackRock Tax Saver and L&T India Equity & Gold fund (both investments are through SIP and I invest Rs 2,000 monthly in each).

Should I stop the SIP in HDFC Tax Saver or continue it for another year? Also, please suggest some other good funds. I have an investment horizon of 10 years.

Vijay Before commenting on your portfolio, it may be pertinent to make certain observations regarding your holdings.

You should ideally consider investing in not more than one fund for tax saving purposes. Also, you should not mix investment with tax saving while making decisions.

There is a multi-asset fund in your portfolio which invests in equity and gold. It would be better if you invest in diversified equity schemes and take exposure to gold separately via exchange-traded funds or gold saving funds.

For investing in gold, you can consider Goldman Sachs BeES, which is an ETF or Reliance Gold Savings Fund.

Switch over from L&T Equity & Gold to L&T India Large Cap, as the latter has performed reasonably well over the past few years.

Park Rs 2,000 in it each month. With a 10-year investment horizon, there is all the more reason for you to consider normal equity funds rather than tax saving schemes.

Coming to your portfolio, HDFC Tax Saver has underperformed mildly and its returns are just short of what DSPBR Tax Saver has delivered over the past one year.

A better plan would be to invest in Canara Robeco Equity Tax Saver or Franklin India Tax Shield, both of which have delivered better returns and have strong performance track records over the long term. You can park Rs 2,000 in one of the above-mentioned funds. But please note that each instalment has a three-year lock-in for tax purposes.

Now, for saving for the long term, you have not stated the purpose, the surplus that you have, or your risk appetite. So, a medium-risk portfolio is being suggested for you.

Consider investing in Quantum Long Term Equity, Birla Sun Life Frontline Equity and ICICI Pru Focused Bluechip Equity. You can invest Rs 2,000 in any one of these three funds.

Once you become comfortable with investments in these schemes and as your surplus increases, you can consider adding a mid-cap fund later on.

*** I have selected Canara Robeco Equity Diversified and SBI Magnum Equity, where I would like to invest Rs 1,000 systematically every month for a minimum of 10 years. I have parked the bulk of my money in safe avenues such as FDs and RDs. I am 27.  Please give your opinion on the schemes that I have selected and also explain how to build a corpus.

Srinivasan Narayanan

Many youngsters, when they start their career, go on a spending binge, given the financial liberty that a regular salary gives.

In this regard, it is nice to note that you have saved regularly in safe debt avenues. Now that you are also interested in equity funds and have even selected a couple of schemes, you seem to be on the right track towards saving for the long term.

Since you have already put a bulk of your savings in debt instruments, you can take a bit more risk on your equity exposure.

At your age, you should be investing at least 60-70 per cent of your surplus in equity. But even if you have only a moderate risk appetite, you must consider parking at least half your investments in equity mutual funds.

Over the long term of, say, 10 years, equity is expected to generate meaningful inflation-beating returns.

Coming to your portfolio, you can invest Rs 1,000 in Canara Robeco Equity Diversified. You can choose Franklin India Bluechip instead of SBI Magnum Equity as the former is a large-cap fund with an excellent track record in its nearly 20 years of existence.

Though SBI Magnum Equity has done well over the last few years, Franklin India Bluechip has generated better returns over the long term.

For building a large corpus over the years, it is necessary for you to invest in multiple asset classes — equity, debt, gold and real estate.

As you age, you must alter the proportion invested in equity and debt to suit your risk appetite and liquidity requirements.

Take a term insurance policy as early as possible as at your age the premiums would be quite low and would require no medical tests. Take a medical cover as well.

Review your portfolio’s performance and see if it is moving in the desirable direction. Make modifications to your portfolio, if necessary, and rebalance it periodically.

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

COMMENT NOW