I have Rs 3 lakh in mutual funds. This consists of Rs 1.5 lakh in HDFC MIP Long Term and balance in HDFC Top 200 and HDFC Prudence. Last year when market was high, I sold units in HDFC 200 and HDFC Prudence and diverted the proceeds to HDFC MIP. Since then I have been confused over the market condition. I have a 15-year horizon. I want to start investments again. Please guide me as to which funds to invest in and the amount of SIP. I am looking at a target Rs 1.5 crore in 15 years. I am 33 years now. How will I know when to stop investments when market condition is bad? Or should I forget about it until I near my goal.

Bala

Bangalore

Booking profits when markets are exuberant is a prudent strategy. However, stopping investments when the markets become volatile is not a good move, especially when you are investing through the SIP route. Remember that it is the market dips that allow you to truly buy at lower NAVs, thus reducing the average cost of your fund holding. SIPs need to be stopped only if you feel your fund is a prolonged underperformer or has an altered mandate that does not suit you or if you face a sudden cash crunch.

Moving to your portfolio, you need not hold 50 per cent of your money in debt-oriented funds, given your age and target. You have not mentioned how much you can spare as surplus for investing in SIP. Hence we recommend a couple of options that will help achieve the target of Rs 1.5 crore.

If you are able to invest Rs 10,000 in funds that will yield an annual return of 15 per cent per annum (we shall name these core funds) and Rs 6,500 per month in more aggressive funds (henceforth called satellite funds) that would return 20 per cent per annum then you can achieve your target of Rs 1.5 crore in 15 years. If this monthly saving appears too high, the other option is to postpone your target to 20 years instead of 15. In this case you can invest Rs 6,000 a month in moderate risk funds and Rs 2,000 each month in funds with a higher risk-high return quotient.

Core funds

The Rs 1.5-lakh parked in HDFC MIP Long Term can be shifted to equities. This sum will last for another 15 months for your Rs 10,000 per-month SIP. Post this you should be able to afford this sum as surplus every month. The rest of the Rs 1.5 lakh in the HDFC funds can be continued. This will generate over Rs 12 lakh in 15 years.

We believe funds such as HDFC Top 200 as well as HDFC Prudence can comfortably return 15 per cent per annum over the long term. HDFC Top 200 has generated 25 per cent returns over the last 15 years, while HDFC Prudence has managed about 20 per cent return since its inception in 1994. However, given that markets have become more mature over the last decade, expectations have to be toned down.

Use a systematic transfer plan from HDFC MIP Long Term to invest Rs 8,000 (or Rs 4,800 if you go for the second option) equally between the above two funds. The remaining sum allocated for core portfolio can be invested in Quantum Long Term Equity Fund. This fund has a large-cap bias and a value approach. You may see some underperformance compared with other top diversified funds during prolonged market rallies. Do not be deterred by this as downside protection is a must given your target.

Satellite portfolio

Moving to your satellite portfolio, you can consider adding IDFC Premier Equity and ICICI Pru Discovery to this. If you can systematically buy every month from the market add Benchmark's Nifty Junior ETF. Otherwise stick to the first two funds. Note that first-mentioned mid and small-cap focussed funds will see volatile periods. However, they ought to deliver at least 20 per cent return over your holding period, to compensate for the risks undertaken.

Review their performance every year; any underperformance of benchmark over several quarters need not be tolerated. Also adopt an active profit-booking strategy in these funds when you witness years of exceptional returns such as the ones seen in 2007 and 2009. Nifty Junior being an ETF will not have any SIP option. You have to buy them yourself in the market every month. As for your fear of when to exit the market, do not stop investing at any point even if you witness market turbulence. Instead, sweep the profits to safer options such as HDFC MIP Long Term or, better still, fixed deposits of banks or good quality corporate deposits during such times.

If you see your portfolio cross your target well-ahead of your 15-year time horizon, gradually transfer the same to safer avenues as any sudden crash in markets in the year of your goal can drastically pull down your corpus.

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