Fund Talk

I am 36 and work in a private company in Chennai. I started investing in mutual funds 3 years ago and have invested a lumpsum of Rs 3 lakh until now. The funds I hold are: Sundaram Tax Saver, IDFC Tax Advantage, HDFC Top 200, IDFC Capital Protection Oriented Fund Series-1, HDFC Tax Saver, IDFC Tax Saver, Sundaram Capex Opportunities, Fidelity Tax Advantage, SBI PSU Fund, Sundaram MIP Moderate, Reliance Regular Savings Equity, L&T Infrastructure, UTI Opportunities, Reliance Banking and Reliance Gold Savings. I have also started four systematic investment plans (SIPs) recently on Reliance Regular Savings Equity, Tata Dividend Yield, Fidelity Short Term Income Fund and HDFC Equity with Rs 1,000 invested in each fund per month. My objective is to achieve a corpus of Rs 75 lakh in the next 10 years. I can average a monthly saving of Rs 25,000. Of this, I plan to invest Rs 12,500 in Kisan Vikas Patra and rest in SIPs. Is my above combination of funds correct to achieve my objectives?

S. Anand

Chennai

To accumulate a corpus of Rs 75 lakh in 10 years, you would need to invest more in equity funds and do some careful planning, both on your overall allocation to stocks and choice of funds. Your portfolio may need a thorough overhaul. You mention that your investments so far have been in the form of lump-sums invested in a large number of funds. The list of funds you own suggests that you have probably not been very clear about your objectives while investing in these funds. As many as five of the funds you own are tax saving funds, a couple are hybrid funds with a debt tilt (IDFC Capital Protection and Sundaram MIP); you hold a Gold Fund as well. Diversified equity funds would be the best choice for your long term portfolio given the sum you wish to accumulate.

Getting to your target corpus of Rs.75 lakh in ten years with your current portfolio and the future SIP investments you outline may prove a difficult task. Therefore, we suggest two changes to your investment plans. First, make sure your existing portfolio of funds consists only of equity funds. As pure large-cap funds may not be able to deliver over a 15 per cent annual return, you may need to add funds with a flexicap or mid-cap stock focus to bump up those returns. Based on the funds you have mentioned, a rough computation shows that the Rs 3 lakh you invested three years ago may have grown to only about Rs 3.6 lakh today, given choppy equity market conditions. Continuing with this investment for 10 more years in plain vanilla equity funds at an assumed 15 per cent annual return may fetch you a sum of just Rs 15 lakh after ten years.

Aggressive portfolio

We would instead suggest that you convert this into a ‘satellite' portfolio of flexicap or mid-cap oriented funds, especially as your portfolio is already overweight on tax funds. Though some of the funds you own are good performers within the tax category, it may be best to completely rejig this portfolio to invest in five mid-cap oriented/thematic equity funds- Benchmark CNX 500 Fund, HDFC Midcap Opportunities, IDFC Premier Equity, Reliance Banking and UTI Master Value are good choices today. If these funds manage a 20 per cent annual return over the next 10 years, the Rs.3.6 lakh you hold today would be worth Rs 22 lakh at the end of 10 years.

Core portfolio

You will have to make up the residual sum of Rs 53 lakh through your monthly SIP investments in new funds. As it would be realistic to assume only a 15 per cent annual return for the major part of your equity investments, you may have to invest Rs.19000 a month (instead of the Rs.12,500 you mention) to get to that target. Funds such as HDFC Top 200, HDFC Equity, Birla Dividend Yield Plus, Quantum Long Term Equity may be suitable options for this SIP. Spread out your monthly instalments equally over these funds. The sum of Rs 19,000 a month may look to be a large sum for you to put into equities today. However, that investment may be essential given your ambitious targets. One strategy you can adopt is to invest higher sums in your equity SIPs in the initial five years. If you are lucky and the equity funds you choose deliver much more than the assumed 15 per cent, who knows you may get to your target earlier than expected.

Do monitor your portfolio at half yearly intervals. If you find that your portfolio value has hit the half-way (Rs.27 lakh) mark quickly, you can reduce your equity fund SIPs at that juncture and plough a larger portion of your savings into debt investments.

Queries may be e-mailed to >mf@thehindu.co.in , or sent by post to Business Line, 859- 860, Anna Salai, Chennai 600002.

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