Mutual Funds

Your Fund Portfolio

Parvatha Vardhini C | Updated on January 15, 2018


I am 24 and self-employed. Since April 2015, I have been investing ₹1,500 every month in UTI Transportation and Logistics and DSPBR Small & Midcap. I intend to continue this investment for 25 years. Are my choices good enough? I am also planning to start one more SIP. Can you suggest a fund?

Zishan Ahmad

The thought process behind the choice of funds is not clear. The choice of a small and mid-cap fund and a sector fund for what is perhaps your first investment denotes a very high risk appetite. Mid- and small-cap stocks and cyclical sectors like automobiles have done well since the 2014 stock market rally. But the valuations in the small and mid-cap space are heated up now and these stocks are ripe for a corrective spell.

Besides,sector funds get impacted by prolonged spells of outperformance and under-performance and hence timing the entry and exit into these funds is quite critical. Your long-term horizon brings down the risks. But when you are beginning to build your mutual fund portfolio for long-term goals, you can go with diversified funds rather than sector funds for building your core portfolio. You can add sector funds later on as part of your satellite portfolio.

Stop SIPs in both your funds henceforth. Instead, invest the entire ₹3,000 every month in Birla Sun Life Frontline Equity. This fund invests predominantly in large-cap stocks and has a solid track record across the up and down cycles of the market. For the additional sum you want to invest, consider other large-cap oriented funds such as SBI Magnum Equity or ICICI Pru Focused Bluechip. You can add midcap/multicap funds when your investible surplus increases.

I am 23 and am working as an assistant in a private firm. I am investing ₹2,000 per month in PPF and pay ₹2,000 as life insurance premium. My fund portfolio consists of ₹2,000 each in five tax-saving funds: DSP Blackrock Tax Saver, Axis Long Term Equity, Reliance Tax Saver, ICICI Pru Long Term Equity and Franklin India Tax Shield. My time horizon is until my retirement. But, I would need some amount for intermediate needs such as my wedding, and the education of my children. Am I on the right track? I also have surplus amount that I can invest.

Geetika

Your investments may need some reconsideration. Under Sec 80C of the Income Tax Act, an investment of up to ₹1.5 lakh in instruments such as Equity Linked Savings Schemes, PPF, life insurance premium etc, will be eligible for tax deduction. In your case, it is a total investment of ₹1.2 lakh a year in ELSS schemes. Besides, ₹24,000 per annum is being invested in PPF along with ₹2,000 as insurance premium. This makes a total of ₹1.46 lakh. While this is lower than the ₹1.5 lakh upper ceiling, if your employer is deducting provident fund contributions from your salary, then you can reduce your annual contribution to ELSS to that extent and invest the remaining in diversified funds. Besides, since you have stated that you have investible surplus, you can invest in diversified funds such as Franklin Prima Plus and Quantum Long-Term Equity.

You can invest in ELSS schemes even if you don’t get the tax deduction. But lumpsum or SIP, ELSS has a lock-in of three years.The lock-in may prevent you from cashing out freely for your medium-term goals such as your marriage.

Secondly, instead of investing in five ELSS schemes, diversification is always better.

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Published on November 27, 2016

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