Your Fund Portfolio

I am planning to invest in a balanced fund through SIP mode for a long-term horizon. Please suggest some good funds.

Sayaneel Kar

Since you have a long-term horizon, equity-oriented balanced funds are a better bet than debt-oriented balanced funds. While relatively riskier than debt-oriented balanced funds, equity oriented balanced funds have the potential to give higher returns over the long term and also enjoy favourable tax treatment.

Gains are exempt if the funds are held for more than one year since they invest at least 65 per cent of their corpus in equity.

Good choices in the category include HDFC Balanced, ICICI Prudential Balanced and L&T India Prudence. These funds have delivered mid-to-high teen annualised returns over the long term and, having done much better than most peers, figure in the top quartile in the category.

The equity exposure of these funds in the 65 per cent range, is in large-cap stocks while the debt exposure is mostly in high-rated instruments; this moderates the risk quotient.

I am 28. I am investing ₹10,000 through SIPs in the following mutual funds: ₹2,000, ₹1,500, ₹1,500, ₹1,500, ₹2,000 and ₹1,500 in Reliance Small Cap, Franklin India High Growth, Mirae Asset Emerging Bluechip, Birla Sun Life Frontline Equity, Kotak Select Focus and HDFC Mid Cap, respectively. I can invest another ₹10,000 aimed at tax savings. Is my fund selection proper? Kindly advise.

Siddarameshwar

First, kudos for starting investing through SIPs in equity mutual funds at a young age. Continue investing and you should be rewarded with a handsome corpus in a few years, thanks to the healthy return potential of equities and the power of compounding.

That said, for the sum you are investing monthly (₹10,000), you have spread yourself across too many funds (six) and across market-cap categories. You are investing ₹1,500 in a large-cap fund (Birla Sun Life Frontline Equity), ₹3,500 in two multi-cap funds (Franklin India High Growth, Kotak Select Focus), ₹3,000 in two mid-cap funds (Mirae Asset Emerging Bluechip, HDFC Mid Cap) and ₹2,000 in a small-cap fund (Reliance Small Cap).

The selection is broadly fine, with these funds having delivered well over the past few years. But since your investment outlay is moderate, we suggest halving the current portfolio to three funds.

Put ₹3,000 monthly in Birla Sun Life Frontline Equity, a top quartile large-cap fund in the long-run with reputation of containing downsides and participating well in upsides.

Split the remaining ₹7,000 equally between Franklin India High Growth, a multi-cap fund with a strong track record and relatively higher mid-cap allocation, and Mirae Asset Emerging Bluechip, a high performer among mid-cap funds. In the long run, the large-cap fund will lend stability to the portfolio, while the multi-cap and mid-cap funds will provide a kicker to returns. Given that you are young, we assume you can take on and ride out the higher risk associated with these multi-cap and mid-cap funds.

That said, we would recommend staying away from riskier small-cap funds for now; the sharp market rally over the last year seems to have taken valuations in the category into frothy territory. As and when valuations correct, you can consider adding a small-cap fund with a good track record.

Since you plan to invest another ₹10,000 monthly towards tax savings, you can put ₹5,000 each in two good equity linked savings schemes (ELSS) – DSP BlackRock Tax Saver and Invesco India Tax Plan – that have less exposure to small-caps compared with peers. Investing in ELSS is eligible for tax break under Section 80C. But note that each SIP investment in ELSS is subject to a three-year lock-in; you can hold on longer if you choose to.

We have recommended schemes from different fund houses for your current investments and tax saving plans to reduce concentration risk of high exposure to fund houses. Overall, restrict investments to 5-6 mutual funds; too many funds could get difficult to track.

Have a long-term horizon (at least five years). Review your funds’ performance once a year. Make changes if a fund’s performance deteriorates on a sustained basis, especially vis-à-vis its benchmark.

Send your queries to mf@thehindu.co.in

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