‘SIPs are not for the short-term’

I currently invest Rs 5,000 in each of the following funds: Fidelity Equity, HDFC Top 200, IDFC Premier Equity, HDFC Mid Cap Opportunities.

Except Fidelity Equity where I have been investing for 15 months now, in all other schemes I started the process only from January this year.

I will need Rs 50 lakh in the next 9-10 years and would like to know if I am proceeding in the right direction. I am especially concerned about Fidelity. Ought I to go for alternatives?

Ashish Pathak

You have set yourself a very realistic target and have given sufficient time to accumulate the corpus.

If you continue to invest Rs 20,000 every month for a period of 10 years and this sum earns an interest of 13.5 per cent annually, you will quite easily reach the target of Rs 50 lakh. Hence, the return expectation is quite reasonable.

Your concerns about the Fidelity scheme are justified after the fund house was taken over by another asset management company. It will be prudent to adopt a wait and watch approach and stop further SIPs in Fidelity Equity.

All the other funds in your portfolio have a good track record and have delivered superior returns over the past 3-4 years.

You can consider adding Canara Robeco Equity Diversified or UTI Opportunities instead of Fidelity Equity. Adding one of the two would give you a multi-cap fund, complementing the one large-cap and two mid-cap schemes that you have already put your money in.

Monitor your portfolio once every year to cull out underperformers and to rebalance. Book profits in case of abnormal returns during any year.

In case you reach the targeted corpus ahead of time, sweep the proceeds to a good debt fund.

*** I work for a PSU. My monthly income is Rs 30,000. My monthly expenses are Rs 16,000.

My current investments are in a recurring deposit for Rs 3,500. There isalso an EMI of Rs 8,000 that I need to pay. The loan would be repaid by 2015.

I plan to park an amount of Rs 2,500 monthly in SIP for three years. Kindly note that I am a beginner as far as investing in mutual funds is concerned. I may not opt for dividend payout option.

I have shortlisted SBI- Emerging Business, HDFC Mid-Cap Opportunities and HDFC TOP 200 Fund.

Kindly suggest an ideal fund for starting a SIP.

R.Thampi It is good to note that despite managing a relatively small surplus, you wish to invest in funds.

Your investment in a recurring deposit would take care of your debt investment, for the present.

You have stated that you are new to the world of mutual fund investments. Given this, we suggest you play safe and start by investing in a balanced fund. If you have a penchant for slightly higher risk, try a large-cap scheme.

You can choose HDFC Balanced or ICICI Pru Focussed Bluechip depending on your risk appetite. SBI Magnum Emerging Business and HDFC Mid-cap Opportunities are both mid-cap funds and entail high risk.

Although HDFC Top 200 is an excellent fund with a long track record, over the past 3-4 years ICICI Pru Focussed Bluechip has delivered superior performance. As your learning curve in mutual fund investments improves and as and when your surplus increases, you can add more funds.

But three years is too small a timeframe to accumulate a significantly large corpus. You must ideally continue SIPs for a period of 7-10 years for you to be able to generate inflation beating returns.

*** I have the following investment in Mutual funds Via SIPs: In Franklin India Bluechip, ICICI Prudential Focused Bluechip Equity, HDFC Equity and Canara Robeco Equity Diversified, I invest Rs 5,000 each. I park Rs 4,000 in HDFC Top 200 and Rs 2,000 in ICICI Prudential Banking and Financial Services. In addition to funds, I invest Rs 2,000 a month in Post office RD.

Please let me know if these funds are good enough. I want to invest for 5 years and would like to know what the returns would be.

Chandra Mowli All the funds in your portfolio are of fairly high calibre. But it can still be tweaked for better results by avoiding overlaps.

Continue your investments in Franklin India Bluechip, ICICI Pru Focussed Bluechip, and Canara Robeco Equity Diversified. HDFC Equity and HDFC Top 200 have considerable overlap in terms of sectors and stocks invested in. The former, however, has delivered better results in recent times. So continue your investment in HDFC Equity.

Given that your investment is (only) for five years, your portfolio can do with some tempering. Switch from HDFC Top 200 to HDFC Balanced and park Rs 4,000 there.

Sector funds in general must be avoided, unless you can time entry and exit. But if you are convinced on the banking theme, invest Rs 2,000 in Reliance Banking as the fund has delivered excellent returns over the past nine years.

Coming to the final part of your question, it is extremely hard to predict returns. But if the past five years are anything to go by, the best of diversified funds have delivered 10-12 per cent annually over this period.

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

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