Mutual Funds

Your Fund Portfolio

AARATI KRISHNAN PARVATHA VARDHINI C | Updated on January 20, 2018

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I have been investing in IDFC Premier Equity, HDFC Top 200, Franklin India Bluechip, HDFC Balanced and Franklin India Taxshield through SIPs for more than seven years. IDFC Premier Equity and HDFC Top 200 have not been performing well in the last few quarters. Should I stop the SIPs in both funds and redeem the units? Which other funds should I invest in?

Hemang Patel

No, we would not advise stopping your SIPs in funds such as HDFC Top 200 and IDFC Premier Equity, as the slowdown in performance is recent. As both these funds have successfully weathered at least two market cycles before this, it would be best to wait and watch. We do not recommend selling a fund or stopping SIPs (especially in falling markets) unless it has underperformed its chosen benchmark for two years or more at a time.

HDFC Top 200 remains a top quartile fund for 10 years. The fund’s performance in the last two years has suffered because of its contrarian portfolio stance. It has significant exposures to beaten down industrial, cyclical and bank stocks which have taken a big punishment of late.

The fund’s thesis is that an economic recovery is just ahead and that cyclical stocks would be the best bets to play this when a recovery happens. This stance has not paid off in the last two years. But as the fund has proved to be correct about reversals in market cycles in the past, it would pay to continue with your investments for now.

IDFC Premier Equity Fund, also a fund with a good record, has a contrary portfolio stance. In the last couple of years, the fund has taken the view that recovery will take time to pan out and has focussed on low beta stocks.

This reflects in the fund’s low losses in the last one year, against peers. This is a top quartile fund in its category over both five- and 10-year time frames. The two funds actually complement each other and fit well into your portfolio.

My son is three and I need to build a corpus of ₹2 crore for his college education by 2031. Please suggest how much I should invest monthly in MFs for this. I am open to moderate risks.

Yogendran

If you invest ₹40,000 every month and your investments earn a compounded annual return of 12 per cent during this period, you will be able to accumulate ₹2 crore by the time your son turns 18. If your expected returns are pegged at 15 per cent, you will require a lower investment of ₹29,500.

We have pegged the return expectation at 12 per cent considering your moderate risk appetite. You can make use of the several online calculators available to try out various permutations and combinations of the amount required, rate of return, time period to get to your investment.

Assuming you can invest the ₹40,000 per month that is required to meet your goal, you can split the amount across the following funds: Invest ₹6,500 each in Kotak Select Focus, Franklin Prima Plus, SBI Magnum Equity and Tata Balanced. The remaining ₹14,000 can be split equally between ICICI Pru Value Discovery and Mirae Emerging Bluechip.

This will ensure that 65 per cent of your investments go into large-cap-oriented funds and balanced funds which provide safety and stability.

ICICI Pru Value Discovery and Mirae Emerging Bluechip have slightly higher risk profiles and a 35 per cent allocation to these funds will help give a kicker to returns.

Since you have a long wait, you need to monitor the performance of these funds periodically and replace them, if necessary, over the years.

Published on February 21, 2016

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