I am 32 and work as a software engineer. I have been investing ₹10,000 a month in the following ELSS funds over the past two years: Axis Long Term Equity – ₹5,000; DSBR Tax Saver – ₹2,000; Reliance Tax Saver – ₹1,000 and ICICI Pru Long Term Equity Fund – ₹2,000. I also started a new SIP in ICICI Pru Value Discovery for ₹2,000 a month, recently. Kindly comment on my fund choices. I want to invest another ₹2,000 per a month in a mid-cap fund. Please suggest a good fund for the same. My goal is retirement planning.

Balaji KN

Investing in ELSS schemes is an efficient method of saving taxes, especially when you are young and can take on the risk of market fluctuations in order to earn higher returns. All four funds are good performers over the long term and hence, you can continue investing in these for the near to medium term. What you could probably do is allocate the total SIP investment equally among the four funds. Currently, the allocations are a bit lopsided, with half your monthly investment in ELSS schemes going into one fund, Axis Long-Term Equity, and the remaining half, being spread across three funds.

A sum of ₹10,000 a month in ELSS schemes works out to ₹1.2 lakh per annum. We assume that you have other eligible tax-saving investments or expenses in order to claim the full ₹1.5 lakh deduction available under Section 80C for this purpose. In case other savings and investments exceed ₹30,000 ( ie, ₹1.5 lakh minus ₹1.2 lakh ), you can consider reallocating some sums from the ELSS schemes to other diversified equity mutual funds.

While the ELSS schemes are a narrow group, choices are plenty if you move to diversified equity mutual funds. Besides, every SIP in an ELSS scheme has a lock-in of three years, SIPs in other funds are locked in only for one year. Diversified funds are a good fit if you want to build a retirement portfolio.

It is good that you have already made a start with ICICI Pru Discovery in the diversified funds space. Pru Discovery is a multi-cap fund and is a consistent performer across market cycles. You can continue your SIPs here. In the mid-cap space, you can invest in Mirae Emerging Bluechip.

I am 33. I invest ₹11,000 a month in ICICI Pru Dynamic, ₹3,000 a month in HDFC Top 200 and ICICI Focused Blue Chip Equity and ₹2,000 in Franklin Smaller Companies Fund. I would like to invest ₹5,000 more per month. Kindly suggest some funds.

Seshadri Jagannathan

You are putting in almost 60 per cent of your current monthly investment in ICICI Pru Dynamic. This fund is benchmarked to the Nifty 50, has a large-cap slant and takes a bit of cash/debt calls.

ICICI Pru Focused Bluechip Equity is also a large-cap fund and is benchmarked to the Nifty 50. Including HDFC Top 200, almost 90 per cent of your monthly SIPs is currently going into lower-risk, large-cap oriented funds.

If you are investing for long-term goals such as retirement, since you have age on your side, you can increase allocations towards multi-cap/mid-cap funds to give a boost to your returns. The fact that you have chosen to invest in Franklin Smaller Companies also shows that you are willing to take a bit of risk for higher returns.

For the ₹24,000 you want to invest every month (including the additional ₹5,000), reallocate your SIPs as follows: Invest ₹4,000 each in ICICI Focused Bluechip, Birla Sun Life Frontline Equity and SBI Magnum Multicap; ₹3,000 each in HDFC Top 200, ICICI Pru Dynamic, Franklin Smaller Companies and Mirae Asset Emerging Bluechip.

This will leave you with an allocation of about 60 per cent towards large-cap oriented funds (ICICI Focused Bluechip, Pru Dynamic, HDFC Top 200 and Frontline Equity) and the rest towards multi-cap/mid-cap funds. This allocation will suit an investor with a moderate risk appetite, looking to save towards long-term goals.

Send your queries to mf@thehindu.co.in

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