Fund Talk

I am 34 years old and my husband is 36. Our children are aged 6 and 2. We started SIPs last year. We have monthly SIPs of Rs 5000 each in DSP BR Top 100, HDFC Top 200, Birla Sun Life Frontline Equity and IDFC Premier Equity Fund Plan A. We intend to soon start three more SIPs of Rs 5,000 each every month. We prefer to invest in HDFC Equity, Reliance Growth and Reliance Banking. In March 2011, we opened a recurring deposit for 10 years. The monthly instalment is Rs 12,000 and the maturity value is Rs 25.75 lakh. We have already taken care of our real estate needs. We are buying in small numbers Gold ETF units from Reliance Gold Fund and also buying silver through e-Silver facility of National Spot Exchange. We are occasionally dabbling in secondary markets too.

Our mutual fund investment horizon is 15 years. I plan to opt for retirement after 15 years while my husband would continue his service. The objective of our investment is to meet our children's higher education and also to meet a portion of our retirement corpus.

Can we expect a return of Rs 2-2.50 crore at the end of 15 years from out of our mutual fund investments? Also, please offer your comments on our investment strategy, particularly on the selection of present funds and on the proposed funds.

Jamuna Gopinath

Mumbai

Your sound investment strategy straddling various asset classes is inspiring. Starting regular investments early on in life, together with a high savings rate can, on most occasions, help achieve investment goals with comfort. While we do not have information on your proportion of equity to debt, we believe you can stay invested up to 75 per cent in equities in relation to debt investments. Also, ensure that real estate does not take up too big a chunk (over 50 per cent) of your total assets.

Mid-cap tilt

Moving on to your goal, yes, it is possible to reach a target of Rs 2 crore in the next 13 years (we would prefer that you sweep your equities a year or two before your goal to safer debt avenues) if your investments earn anywhere between 15-18 per cent per annum compounded annually. However, to achieve Rs 2.5 crore, at least 40 per cent of your SIP or Rs 15,000 invested every month should earn at least 22 per cent. While such a target would have been easier to achieve in the last decade, one cannot be sure of the same if the present (volatile and directionless) market condition continues for a few more years.

Hence, to be on the conservative side, let us assume that most of your funds would earn a 15 per cent annual return while those with a mid-cap tilt would be required to return 20 per cent. In another five years from now, if you are able to ramp up your savings by Rs 12,000 and add fresh SIPs from then on for the next eight years, earning at least 15 per cent per annum, you should be able to reach Rs 2.5 crore from your mutual funds.

The recurring deposit that matures in 10 years can be invested for the subsequent five years in a safe debt instrument such as bank FD or bonds from companies with a good credit standing. If the maturity sum earns at least 8 per cent per annum you would have Rs 38 lakh from this corpus 15 years from now. It is a good idea to buy gold and silver in small quantities. However, do not expect these commodities to provide equity-like returns. Also, given the high volatility in these metals, use any sharp rallies to book profits occasionally.

Portfolio shuffle

To help your portfolio generate the required returns, we would like to rejig it a bit. We believe you have an above-moderate risk profile. You goals also require you to have reasonable risk appetite. Hence, it is desirable that you hold a few mid- and multi-cap funds in your portfolio. HDFC Top 200 is a large-cap fund with a commendable track record.

Continue SIPs in the fund. However, you do not need to duplicate your portfolio with a similar fund DSP BR Top 100. We suggest you stop SIPs in this and move to Fidelity Equity. This would give you a wider mix of large and mid-caps.

Similarly, Birla Sun Life Frontline Equity can be substituted with a more mid-cap biased value fund Birla Dividend Yield Plus. This fund would also provide better downside protection in market declines compared with typical mid-caps. In fact it fell lesser than Frontline Equity in the 2008 downturn.

You can start SIPs in HDFC Equity and IDFC Premier Equity. Choose ICICI Pru Discovery instead of Reliance Growth. The latter's performance has lagged in recent times. Reliance Banking is a good choice, provided you are willing to occasionally sweep profits in to other diversified funds. As and when you intend to up your savings rate, you can add Benchmark's Junior Nifty ETFs, buying small quantities each month.

COMMENT NOW