Mutual Funds

Your Fund Portfolio

Parvatha Vardhini C | Updated on January 12, 2018


I have been investing ₹3,000 in each of the following funds since the last two years — Franklin Smaller Companies, Franklin High Growth, HDFC Mid Cap Opportunities, Reliance Equity Opportunities, L&T India Value, UTI MNC, SBI Magnum Equity and SBI Blue Chip.

I will be retiring after five years.

For my retirement I would like to generate a corpus of ₹2 crore so that I can invest the same amount further to meet post-retirement expenses partly. Am I moving in the right direction?

Hariprasad Damodaran

You started investing two years ago and have five years to go for retirement. A total investment of ₹24,000 per month over these seven years will not yield ₹2 crore.

Assuming a compounded annual return of 12 per cent, you will at best be able to raise about ₹32 lakh. Considering that 75 per cent of your monthly sums go into mid/small- cap, multi-cap and thematic funds, even if we raise the return expectations to 15 per cent, you will have a corpus of about ₹35.75 lakh at the time of your retirement. To obtain ₹2 crore in seven years, you will have to invest about ₹1.5 lakh every month (assuming 12 per cent returns), which may not be possible.

Since you have begun your mutual fund investments quite late into your working life, the corpus from this can at best supplement your other savings and retirement benefits.

Equity investments are subject to market vagaries and a long time horizon brings down the risk of losses or underperformance substantially.

While a time horizon of five to seven years is not too short, it is not too comfortable either, especially for someone close to retirement. Usually, to be on the safer side, a combination of equity, balanced and debt funds is recommended.

Since there is a yawning gap between how much you are investing and your target, you can stick to equity and equity-oriented balanced funds. But you can make your portfolio less aggressive.

Stop SIPs in UTI MNC, a thematic fund where the risk is higher than diversified equity funds.

Reliance Equity Opportunities is also an underperformer among multi-cap funds and you can stop SIPs here as well. Invest as follows: Put in ₹4,000 each in SBI Bluechip and Birla Sun Life Frontline Equity, two solid large-cap oriented funds. Another ₹4,000 can be invested in ICICI Pru Balanced, an equity-oriented balanced fund. The remaining ₹12,000 can be divided equally among Franklin High Growth, HDFC Mid-Cap Opportunities and L&T Value.

This will result in a 50:50 allocation towards lower risk large-cap /balanced funds and higher risk multi-cap and mid-cap funds. Going by their track record, this combination is good enough to fetch annual returns of 12 per cent discussed above.

Remember that every SIP needs to cross a period one year for the amount to be tax-free. So you may not be able to cash out your investments at one go.

I am 28. Every month, I invest ₹1,000 each in Franklin Prima , Franklin Smaller Companies, ICICI Pru Discovery; ₹2,000 in ICICI Pru Focused Blue Chip and ₹1,500 each in SBI Bluechip and DSPBR Micro Cap.

My risk appetite is moderate to high. I want a corpus of ₹1.5 crore after 15 years. Kindly suggest whether my current allocation is good enough.

I can invest ₹2,000 more per month if needed.

Krishna

For a corpus of ₹1.5 crore after 15 years, you need to invest ₹22,000-30,000 every month , assuming returns of 12-15 per cent on your portfolio. Since you are quite young, if you don’t have any specific goals to be met after 15 years, you can extend your investment period.

Over the years, you can also raise your investment amount every month as your income increases. As per the current allocation, you are putting in ₹3,500 in large-cap oriented funds (Pru Focused Bluechip and SBI Bluechip) and ₹4,500 in multi-cap/mid and small-cap funds. Continue with all the current funds as they have a good track record.

Spread the additional ₹2,000 equally between ICICI Pru Discovery and Franklin Prima itself. This will lead to an allocation of 65 per cent towards multi-cap/mid and small-cap funds, suiting a moderate to high risk appetite.

Send your queries to mf@thehindu.co.in

Published on January 01, 2017

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