I am planning to invest in mutual funds for savings and wealth-generation and have selected the following funds: HDFC Top 200, DSPBR Top 100, Reliance Regular Savings Equity, Sundaram Select Midcap, IDFC Premier Equity and ICICI Pru Discovery. Is my portfolio good? How much will I be able to generate in the current market situation if I am investing Rs 8,000 per month through SIPs in these funds for 5 years. For the long term, I expect to have Rs 1crore by 2026. If I continue in these funds, will I be able to achieve my goals? If not, kindly suggest a suitable alternative for me to achieve Rs 1crore in 15 years. My age is 26 and I am just starting my investments. I will be able to invest Rs 8,000 a month until December 2011 and Rs 25,000 thereafter.

Sujeeth Ramakrishnan, Kolkata

You should be able to comfortably reach your long-term goal, if you start investing right away. With an SIP of Rs 8,000 per month, if your portfolio is able to generate 15 per cent over the next five years, you would have Rs 7.08 lakh in hand at the end of this term. However, you have stated that you would be able to up your savings to Rs 25,000 a month post December 2011. This would result in Rs 18.2 lakh at the end of five years.

Regarding your long-term goal of Rs 1crore, if you are able to invest the amount that you have stated above then you would comfortably manage Rs 1.45 crore at the end of 14 years, if your portfolio earns 15 per cent per annum compounded annually. Even assuming that you manage only a 12 per cent return, you should still make it.

Moving to your portfolio, you have selected a good set of funds with a steady track record. However, we would like to fine tune it. Both HDFC Top 200 and DSPBR Top 100 are excellent funds. However, since both invest in large-caps you may be duplicating your portfolio. Given your age and long-term goal, you need not be too conservative. We suggest you replace HDFC Top 200 with HDFC Equity; the latter being a more diversified fund which invests across market capitalisation segments. Replace Reliance Regular Savings Equity with Quantum Long Term Equity, the former is a rather volatile performer.

IDFC Premier Equity and ICIC Pru Discovery would suffice to provide the mid-cap exposure provide some kicker to your portfolio returns. Exit Sundaram Select Midcap for the sake of avoiding too much exposure to midcaps. Instead, add Birla Sun Life Dividend Yield Plus. This fund, given its focus on dividend yield stocks, has proven its ability to contain downsides during protracted market corrections. You can allocate up to 25 per cent of your investments to the two mid-cap funds and save the rest for SIPs in the other diversified funds mentioned above. If you have earmarked this sum of Rs 1crore for a specific goal, you would be better off exiting equities once this amount is achieved, even if it is well-ahead of the target year of 2026. For instance, at 15 per cent per annum, you should be able to cross Rs 1crore in 2024. If your returns are high this may be achieved ever earlier. In such a case, consider moving to short-term fixed deposits or liquid funds (if you have less than a year for your goal) to prevent any erosion of your funds in any sudden market slide.

On Equity-linked savings schemes

Is DSPBR Tax Saver a good choice in ELSS?

Kavindra Salunke, Latur

The fund has been an underperformer in recent years. Higher exposure to index laggards such as Reliance Industries as well as high exposure to financials and engineering has not worked in its favour, although there is a possibility that these sectors may pick up. HDFC TaxSaver or Fidelity Tax Advantage may be better options going by their current record.

Do, however, keep in mind that you can claim tax deduction for ELSS under Section 80C for the current financial year — that is up to March 2012. As things stand, the new Direct Taxes Code does not allow this deduction from April 2012. Hence any fresh investments would not enjoy tax benefits. You may therefore refrain from SIPs and instead make a small investment this year, if you are keen on ELSS.

You may also wonder what would happen to your investment made up to March 2012. There are a few possibilities. One, the fund may keep it locked for three years from the date of your investment and open like any other ELSS, after the lock-in.

Two, it may make all ELSS schemes open-ended and provide option for investors to exit. Three, such schemes could be merged with other diversified schemes within the same fund house (given that the purpose of ELSS would be lost) and investors given an option to exit if they so wish. Whichever be the case, you will be intimated by the fund house.

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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