Mutual Funds

Your Fund Portfolio

Aarati Krishnan | Updated on October 13, 2019 Published on October 13, 2019

I turned 24 this month and have been employed since June last year. I have a savings potential of ₹90,000-100,000 per month. My savings target as far as Section 80C is concerned, includes ₹50,000 per year in PPF and the balance in ELSS.

My investments till date are ₹1.50 lakh (in two tranches) in Reliance Large Cap Fund, ₹50,000 in Birla Tax Relief 96 Dividend and a similar amount in Growth Direct, ₹50,000 each in Axis Long Term Equity Dividend and Mirae Asset Tax Saver Direct, ₹50,000 in Axis Small Cap Direct Dividend and ₹50,000 in HDFC Nifty ETF, all being lump-sum investments.

I also hold a decent amount of cash in my account, which I plan to deploy after getting your advice. Please let me know if I should invest in equity mutual funds alone, after exhausting the yearly PPF quota I have fixed for myself.

I want to ensure that this quantum of money is channelled in the right manner throughout, without compromising on safety or growth, so I can build a substantial kitty in the years to come.

Pratiksha

It is really laudable that you are charting out an investment plan so soon after securing a job and also have such high savings potential. However, for you to approach your investments in a systematic manner, you need to save and invest towards specific financial goals.

A near-term goal may be buying a phone or taking a holiday, a medium-term one may be saving up enough to acquire an advanced degree or a home, and the long-term goal could be retirement.

It is this exercise that will decide what kind of debt and equity funds you should be investing in.

For your near-term goals, short-duration debt funds would be ideal, for medium-term goals, you can use hybrid funds that invest in a mix of equity and debt, and for long-term goals, you can rely on pure equity funds.

In addition, it would be advisable to maintain an emergency fund to take care of eventualities such as job losses or a mid-career break.

Your emergency fund should ideally have nine months’ worth of expenses. If your monthly expenses are ₹50,000, you should have ₹4.5 lakh in your emergency fund. You can retain ₹2 lakh in your bank FD towards this and invest excess cash of ₹2.5 lakh in short-duration debt funds.

HDFC Short Term Debt Fund and Axis Short Term Fund are good choices. Invest in their growth plans for greater tax efficiency.

Every portfolio, including a long-term one, should ideally have debt allocation. The PPF (public provident fund), with its tax-free 7.9 per cent return, is a very good option for a retirement portfolio.

Do maximise your investment in it at ₹1.5 lakh a year, to fulfil your section 80C investments. This would absorb savings of about ₹12,500 a month.

It is likely that you have been investing lumpsums in different ELSS funds to fulfil your tax-saving quota.

This will no longer be necessary with your PPF investment.

Instead, start SIPs ( systematic investment plans) totaling to ₹60,000 in three equity funds, selected for their good track record over market cycles.

We would suggest HDFC Equity and Mirae Asset Emerging Bluechip..

You can also commence SIPs in any open-end Nifty Next50 Fund as this is a good index to capture the high return potential of emerging bluechip stocks.

SIPs are always a better choice than lumpsums because they shield you from the effects of poor market timing and make for regular and disciplined investments.

Go for growth plans that are best placed to create wealth because they reinvest your returns automatically and allow compounding to work.

Given that you have such a large surplus to invest, it would be good to also make regular allocations in a debt fund and in a gold ETF, as a cushion against equity market volatility.

After the above investments totaling to ₹72,500 per month are made, you would have ₹17,500 left out of your savings of ₹90,000. Start a SIP of ₹12,500 in Axis Banking and PSU Debt Fund and another ₹5000 in Nippon ETF Gold BeEs.

These investment choices and funds will need review from time to time. It may be prudent to hire a qualified advisor.

Send your queries to mf@thehindu.co.in

Published on October 13, 2019
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