I am 27, unmarried, and work for a scheduled bank. I recently started investing in the following mutual funds through the SIP mode: Birla Sun Life Equity - Rs 3,000, Birla Sun Life Gold - Rs 1,000, Reliance Pharma - Rs 1,000. For tax saving purposes, I invest in Religare Invesco Tax Plan - Rs 5,000. In addition to the above investments, I have parked money in RDs with monthly outflow of Rs 9,000 for one year. The maturity amount is used to accumulate gold every year. I have small exposure to the equity market and my risk profile is medium to high. I plan to retire by 50 and my goal is to create a sufficiently large retirement corpus. My employer offers me medical reimbursement. Please review my portfolio and suggest modifications.

Chithira

Although you have done the right thing by starting on investments early into your career, the avenues that you have chosen and the allocations may not help you reach your goal. Your investments also do not seem to reflect your risk appetite as you have higher allocation to safer debt instruments. For your age and stated risk appetite, you should have higher allocation to equity. Also, you have invested more money in the tax saving funds than normal diversified equity schemes. While tax planning is important, you must invest more in diversified equity funds and park only a small portion in tax saving schemes.

You also do not need sector funds to reach your goals. Such funds are risky and require timing of entry and exit, which may be quite challenging. So you can exit Reliance Pharma.

Reallocate Rs 10,000 that you invest in mutual funds, as follows: switch from Birla Sun Life Equity to a stronger Birla Sun Life Frontline Equity and invest Rs 3,000 there. Park Rs 3,000 in Quantum Long Term Equity. Invest Rs 1,000 in Reliance Gold Savings fund, rather than Birla Gold Fund and another Rs 1,000 in Religare Invesco Tax.

Invest the balance Rs 2,000 in IDFC Premier Equity, a multi-cap fund with an excellent long-term track record.

Coming to your RD investments, the amount is quite high at Rs 9,000 per month. Also, you have stated that you wish to buy gold with the RD proceeds. Remember, gold must be considered as just a portfolio diversifier and as an instrument that can provide some hedge against inflation. It must not account for more than 10 per cent of your portfolio. Since you are already investing in a gold fund, you can avoid further investments. Every now and then, if you have some surplus cash (after making all investments) you can consider buying coins or more units of the gold fund.

You must consider reducing investment in RDs to Rs 5,000 a month and invest the balance Rs 4,000 in Birla Sun Life Frontline Equity (Rs 1,500), Quantum Long Term Equity (Rs 1,500) and IDFC Premier Equity (Rs 1,000).

Review the performance of the funds in your portfolio once every year and take corrective action, if necessary. Rebalance your portfolio to reflect your risk appetite and to maintain an appropriate asset allocation strategy.

*** I am 28 and would like to save for my retirement. I have been investing Rs 2000 each in the following funds through the SIP mode: SBI Contra, Reliance Diversified Power Sector and Sundaram SMILE. I have a long term view on my investments. Please let me know if my investments have been made in the right funds. I can also invest another Rs 2,500 every month. Please suggest some fund where I can park this sum.

Hitesh Bagadia

You have a completely wrong set of funds for reaching your goals. Investing in a few diversified funds with a proven track record gives you the best chance to achieve inflation-beating returns over the long term.

You have chosen a contrarian fund, a sector scheme and a mid-cap fund for investments. There also seems to be no focus in the choice of funds.

The first thing you must do is to exit SBI Contra, Reliance Diversified Power Sector and Sundaram SMILE. Even if you have a high risk appetite, you could have chosen a set of quality mid-cap funds and derived better returns. All the three funds in your portfolio have had a poor run for the past several years and their mandate does not suit your long-term goals. With the additional Rs 2,500 that you can invest, you will have Rs 8,500 every month for parking in mutual funds.

Split the amount as follows: invest Rs 3,000 each in ICICI Pru Focused Bluechip Equity and UTI Opportunities. Park Rs 2,500 in IDFC Premier Equity. This set of funds will give you exposure to large-, multi- and mid-cap stocks. All the three schemes have excellent long-term track records. But, if you have a higher risk appetite, you can consider replacing UTI Opportunities with HDFC Mid-cap Opportunities.

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

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