I am 28 years old, working in an IT company. I have been investing in mutual funds through SIPs for the last one year. I invest ₹2,000 each in HDFC Equity, Franklin Blue Chip, SBI Emerging Business and IDFC Premier Equity.
I wish to continue my investment through SIP route for 15-20 years.
I wish to accumulate ₹30 lakh over 10 years for constructing a new house. Kindly review my investments.
Aathira
If you invest ₹8,000 a month for 10 years, and your investments earn 12 per cent compounded annual return, you will accumulate about ₹18.5 lakh.
Even if you step up your return expectations to 15 per cent, you will be able to accumulate only about ₹22 lakh, in lieu of the ₹30 lakh that you would require. Of course, current 10-year returns of best-performing funds stand at 19-20 per cent which, if replicated, may take you much closer to your goal.
But it is not a certainty. Besides, you also need to keep in mind that ₹30 lakh, 10 years down the line, may not have as much purchasing power as it has today and so your requirement may actually become higher than that.
For the abovementioned reasons, you need to step up your investments over the years, as your surplus increases.
This will also help you towards other goals, such as your retirement that will be much longer than 10 years.
Coming to your funds, you have diversified well to have one large-cap fund in Franklin Bluechip, a large and mid-cap fund in HDFC Equity and two mid-cap funds.
While you can continue with Franklin Bluechip and HDFC Equity, you can rejig your mid-cap portfolio. Invest in ICICI Pru Value Discovery and Canara Robeco Emerging Equities in the mid-cap space.
They have a track record of superior returns over longer time frames of five and 10 years.
I am 27. I am investing through SIPs in Franklin High Growth - ₹3,000, DSPBR Micro-Cap - ₹2,000, BNP Midcap - ₹2,500, Mirae Emerging Bluechip - ₹2,500 and L&T Value - ₹3,000. I can take risk. Are these funds sufficient for earning 20-30 per cent return in five years?
Shiv Gupta
Your fund choices — four mid-cap funds and one multi-cap fund (L&T Value) — stand testimony to your high risk appetite.
But though you have chosen well to invest in some of the best funds in the mid- and multi-cap categories, your return expectation and the time period within which you expect those returns is a bit unrealistic.
In a really good year, when the markets rally, your funds may perhaps be able to make an annual return of 20-30 per cent, but considering that the five years may have both ups and downs, a compounded annual return expectation of 20-30 per cent in five years is quite high.
Going by history, top-performing mid-cap funds in the last five years have made 18-20 per cent returns. But top performers have fetched the same returns in the last 10 years too!
Secondly, since you have not stated any specific financial goals to be met five years down the line, it is not clear why you want such high returns in such a short period.
Given that you are quite young and may have just started out on your career, you can steadily save for longer periods towards goals such as retirement.
You also need not take high risks then, and can invest in a portfolio that has a good mix of large-cap-oriented funds, to provide stability to returns and contain losses during market falls, and mid-cap funds to give a boost to overall returns.
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.