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I want to accumulate ₹1 crore over the next 10 years through mutual fund investments. I have a PPF account since the last five years where I put in 12,500 every month. I have invested ₹3 lakh in debt instruments over the last three years. Please suggest the right choice of mutual funds.
Nachiket M
Assuming your investments earn a reasonable 12 per cent annual return, you will need to put in at least ₹43,000 every month to build a corpus of ₹1 crore after 10 years. Considering that you also have an outgo of ₹12,500 every month towards PPF, you need to assess if you have enough surplus to make both these investments month after month. If not, in case you don’t have any specific goals to be met after 10 years, you can extend your time horizon; else, considering that your PPF investment is already five years old and that it will mature in another 10 years, you can use this amount to bridge any shortfall in the corpus that may arise from the equity investments. Similarly, your other debt investments can also come in handy to tide over any shortfall.
Coming to the choice of funds, you can invest in large-cap oriented funds to the extent of 60 per cent of your portfolio and direct the remaining 40 per cent to multi-cap, mid and small-cap funds. This allocation will suit a moderate risk appetite. For large-cap oriented funds, choose funds such as SBI Bluechip, Mirae Asset India Opportunities, Birla SunLife Frontline Equity and Quantum Long-Term Equity. ICICI Prudential Value Discovery (multi-cap), Franklin High Growth Companies (multi-cap) and HDFC Mid-cap Opportunities (mid-cap) are the other funds you can invest in.
I am 26 and I work in a public sector bank. I want to invest a lumpsum amount from my earnings in mutual funds for three to five years. I also want to make investment in SIPs. I am not in the tax bracket now. Please suggest mutual funds that are both secure and will fetch a good return.
Priya Venugopal
Since you are new to mutual fund investing, you can begin with systematic investment plans (SIPs) of mutual funds rather than lumpsum investments. You can set aside a sum of money every month from your salary towards the same. Considering that you are young and assuming that you don’t have any immediate needs for the money you are investing, you can choose equity mutual funds over debt funds. As you have not stated how much you can spare each month, it is difficult to give an exact break-up of the number of funds and the amounts to be put into each of them. Invest 60 per cent of your surplus in large-cap oriented funds such as Franklin Prima Plus, ICICI Pru Focused Bluechip, Birla Sun Life Top 100 and Kotak Select Focus; the remaining can be invested in mid-cap/multi-cap funds such as Mirae Emerging Bluechip, Franklin FlexiCap and L&T Value. This 60:40 allocation will suit someone with a moderate risk appetite. If your risk appetite is lower, you can stick to large-cap oriented funds alone.
Investments in equity mutual funds are tax-free if sold after one year of investing. In case of SIPs, this lock-in period of one year applies to each SIP. Since your income is not under the taxable limit right now and you are also investing for the long term, you don’t have to worry about any tax implications of this investment in the near to medium term.
Keep in mind that unlike fixed deposits or recurring deposits, investments in both equity and debt mutual funds are subject to market vagaries. So there is no such thing as absolute security in such investments. However, going by history, the risk of capital erosion or sub-par returns is substantially reduced if you have a long-term horizon of over 5-10 years and if you have chosen the right funds. A compounded annual return of 12-15 per cent on your portfolio is considered fair enough in case of equity mutual funds. We have suggested funds that currently sport a compounded annual return of 15-25 per cent over the last five years. But you can review their performance periodically and make changes to the portfolio if necessary in future.
Send your queries to mf@thehindu.co.in
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