My wife and I, both pensioners, have been investing in the following large-cap equity funds through the SIP route with the main intent of protecting capital: ABSL Frontline Equity, ICICI Pru Bluechip, ICICI Pru Value Discovery, Invesco India Contra, Mirae Asset India Equity, Quantum Long Term Equity, SBI Bluechip and Axis Bluechip. I want to prune the SIPs to 3-4 funds. Please advise.

Mison Mathew

Although your fund choices are quite good, it is not clear how much you are investing in each of the funds, for what purpose and what your time horizon is. You have also not mentioned your other investments. Besides, you have stated that your main intent in investing in funds is to protect your capital.

Being pensioners, your intention to protect your investment capital is in the right direction. But the way in which you have executed it — by investing in equity mutual funds — is not right. While large-cap funds may contain losses better than most other classes of equity funds, you must keep in mind that the net asset value (NAV) of all equity funds move up or down along with stock market gyrations. Of course, if you invest in good equity funds for the long-term, say 7 years or more, your compound annual return may touch double digits. But you cannot brush aside the downside risk.

For one, if you need the money for medical emergencies or other additional expenses at any point in time, you will be on the backfoot if the market is going through a bear phase and the value of your investment has dwindled at that point in time. Secondly, if you don’t monitor the performance of the funds regularly and replace underperformers, you may not get the returns commensurate to the risk that you are taking by investing in equities.

Thus, if capital protection is your priority, you should opt for traditional debt instruments. You can stop SIPs in all the funds and pull out existing investments if you have made reasonable returns.

Since you are pensioners, you should first use options such as National Savings Certificate and Senior Citizen Savings Scheme from the post office which offer sovereign guarantee as well as good returns. You can also consider the PM Vaya Vandana Yojana to supplement your monthly pension.

These apart, you can opt for fixed deposits from banks and finance companies/corporates. While choosing FDs from the latter, it will be wise to choose those rated AAA by rating agencies. Even though most debt mutual funds face the risk of erosion in NAV, if you are willing to take some risk, you can opt for relatively safer debt funds such as corporate bond funds (that predominantly invest in AAA rated instruments), liquid funds and money market funds.

I have the following monthly SIPs: ABSL Top 100 - ₹5,000, Mirae Asset Emerging Bluechip - ₹4,500, L&T India Value - ₹2,500, SBI Magnum Multicap - ₹1,500, HDFC Balanced - ₹1,500. My time horizon is 10-12 years. I will retire in 2033 and my daughter’s wedding is planned around that time. I just completed 12 months investing through the SIP mode. I would now like to renew the SIPs. Please guide whether these fund selections are aligned to my financial goals or do I need to change any of them?

UN Satish Babu

You currently invest ₹15,000 every month. If you continue to invest this amount for 10-12 years, you will end up with a corpus of ₹35-48 lakh, assuming a compound annual return of 12 per cent. This will help partly fund your retirement as well as your daughter’s wedding. If you need more, you can step up your savings as and when your income increases.

Since you roughly have 15 years for both the events, you can also extend your SIPs by 2-3 years to build a larger corpus. But pulling it out in advance and moving the corpus to safer instruments closer to your goal date is a prudent practice. It reduces the risk of your corpus taking a hit due to bear market conditions in the year in which you need the money.

All the funds you have chosen have good long-term performance track records. All of them have beaten their benchmarks over the past five years by a comfortable margin. You have also taken good care to invest across fund categories such as large-cap (ABSL Top 100 now called ABSL Focused Equity), large- and mid-cap (Mirae Emerging Bluechip), multi-cap (SBI Magnum Multicap), value (L&T Value) and aggressive hybrid (HDFC Balanced now called HDFC Hybrid Equity). While some of these funds have underperformed the benchmark over the last one- and three-year periods, you need not change them yet. You can continue with these SIPs for another 6-12 months and take a call later on if the underperformance continues. You currently invest ₹6,500 in low-risk large-cap and hybrid funds, and ₹8,500 in slightly high-risk multi-cap/value/large- and mid-cap funds. This is suitable for someone with moderate risk appetite. Since you have a horizon of over 10 years, you can continue with this allocation.

You need not take high risk by investing in pure mid/small-cap funds.

Send your queries to mf@thehindu.co.in

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