I am a 75-year-old woman with equity shares in several companies. I would like to make further investments of surplus funds, not for monthly income, but for better returns. I do not have to provide for day-to-day living expenses, medical expenses, holiday expenses, and so on. I do not wish to invest in options such as the public provident fund, debt or liquid funds, but would prefer to invest in some equity funds, either for dividend payout or growth. I would like to hold for a long term of three years or more, to earn good profits on redemption. I now hold units in three funds: DSP BlackRock Top 100 Equity, HDFC Equity and Reliance Equity . I want your advice on whether these funds should be retained or changed. Apart from these, I want to buy units in five other equity funds for an investment of Rs 15 to Rs 20 lakh in each of these funds. Which five funds would you recommend?

Krishna Jain

After reading your query, we are quite sure that we don't have to include our usual statutory warnings on the risks of equity investing or providing for your living expenses, while addressing you in this column! You seem to have already taken care of all that, in quite a planned manner. If you are quite sure of handling the risks associated with equity investing, we have four suggestions for your portfolio:

One, if you are investing in equity funds, you need to prepare for a more than three-year waiting period, five years plus would be more practical. The reason we are saying this is that the experience with previous boom-bust phases in the Indian stock market suggest that when a meltdown phase begins, it has taken 12-18 months to play out. Thereafter begins the process of recovery. If an investor has invested at the peak and is waiting to recoup his capital, the entire cycle can take 3-4 years, depending on the severity of the fall and the fundamental factors that dictated it.

Two, given that you have such large sums to invest, do take the systematic transfer plan route to make your investments. This means investing the lumpsum in a liquid or debt mutual fund and setting up a monthly systematic investment plan that ploughs this money into equity funds of your choice in a phased manner. This is essential in your case, as it will ensure that too much of your wealth is not exposed to the risks of poor timing, if markets were to correct from here.

Three, you do need to change your fund choices within equity funds and also add new ones. Going by your query, we are not recommending particularly conservative funds for your portfolio as this does not seem to be your requirement. From the funds that you mention, we would certainly suggest exiting Reliance Equity Fund, given its very ordinary five, three and one year track records. Both HDFC Equity and DSP BlackRock Top 100 remain good choices for your equity portfolio. To complete your portfolio, we would suggest adding funds such as Birla Sun Life Frontline Equity and Birla Dividend Yield Plus, Quantum Long Term Equity and Franklin India Bluechip. In recent times, we have found that equity managers in general have struggled to match the indices. We therefore suggest that you add one or two index fund options to your portfolio. Our preferred choices would be HDFC Sensex Plus Fund (a fund which aims at Sensex-plus returns), Benchmark Junior Exchange Traded Fund and Benchmark CNX 500 Fund. You can also add an international fund- Templeton India Equity Income Fund and a gold exchange traded fund, as diversifiers. Given the size of the portfolio you are proposing, you can afford to hold 8-10 equity funds at a time.

Four, purely from the point of view of curtailing risk and ensuring some liquidity, it may be good to invest in the dividend options of the above funds rather than the growth option. Going in for the dividend option would ensure that you get to lock into the profits on your equity funds from time to time, if the stock market performs well and the funds are able to cash in, in the form of dividend payouts.

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