I am a 54-year old public sector employee and have six more years for retirement. I am sufficiently invested in debt avenues such as PFand PPF. My risk profile is average. I have invested Rs 1,000 each through SIP in the following funds: Magnum Contra from October 2007, Sundaram Select Focus from February 2008, Kotak-50 from March 2008, Birla Sun Life Frontline Equity from August 2008, HSBC Equity from September 2008. How are these funds performing, and should I book profits occasionally? Can I expect 15 per cent return annually? Should I continue investment in these funds till my retirement or is any rejig necessary? I want to invest an additional sum of Rs 5000 in more mutual funds through SIP, till my retirement in November 2016.

Sundar

The funds you hold have a long-term track record but have been lagging behind in performance over the last three years. While we would have normally suggested a wait on these funds, given your limited horizon of 5-6 years, it may be better to switch to more consistent performers that provide confidence in terms of tiding over volatility and deliver returns that you expect.

Performance

You have asked about the performance of your funds. Only two of the five funds have met your return expectation of 15 per cent per annum since you invested. This too, was possible only because you opted for the SIP route. Otherwise, most of them would have delivered single-digit returns. Here are the SIP returns delivered by your funds on a compounded annual basis: Magnum Contra 10.3 per cent, Sundaram Select Focus 9.7 per cent, Kotak 50 14.3 per cent, Birla Sun Life Frontline Equity 22 per cent, and HSBC Equity 15 per cent. Except Birla Sun Life Front Line Equity, none of the others inspire confidence through their performance. Kotak-50 has been improving in recent times, no doubt, but your limited time horizon does not provide leeway for underperformers to improve. HSBC Equity, despite delivering 15 per cent annually, has been struggling to improve its performance. We suggest you sell all the funds except Birla Sun Life Frontline Equity. Add another Rs 1,000 SIP to Frontline Equity. Use the money received from the above funds to do a systematic transfer plan (from a short-term debt fund to equities) into HDFC Equity and UTI opportunities (Rs 2,000 and Rs 1,000 per month respectively can be invested).

The additional Rs 5,000 can be used to start SIPs in HDFC Prudence and Birla Sun Life Dividend Yield Plus. If your compounded annual return is in excess of 25 per cent in any of the funds, book partial profits by selling some units.

Have a five-year time horizon and start shifting your equities to safer debt avenues a year before retirement. Please note that it has not been easy for many funds to deliver even the 15 per cent return (that equities should return to compensate for the risk assumed) in the last three years. Hence, it is important that you watch out for any unusual rallies to sweep profits and also do at least a half-yearly review of the fund's performance vis-à-vis its benchmark.

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I want to invest Rs 5000 per month in mutual fund through SIP mode for 10-15 years. My goal is to accumulate a good sum for my daughter's education and wedding. Kindly suggest the fund names and amount to be invested in each fund.

A. Kesavan

It is good that you are investing with a goal in mind. However, it is also important that you fix a target amount that you wish to achieve for the education and marriage expenses. This is vital to determine how much you need to save for the goals. Otherwise, you may end up saving much less than you ought to, for meeting the goals. To give you an example Rs 5,000 per month, if invested for 10 years and earning 15 per cent per annum would leave you with Rs 13.7 lakh. The same, at a 20 per cent return, would give a higher sum of Rs 18.8 lakh. This calculation is nothing but the future value of your monthly investments, earning a 15 or 20 per cent compounded annual return. Hence, decide the corpus you need and work towards it. Even if you are unable to save more than Rs 5000 now, you can consider increasing it over the years.

START with two funds

For the Rs 5000 per month you can spare now, it would suffice that you invest in just a couple of funds. Consider investing Rs 3,000 and Rs 2,000 per month in HDFC Equity and IDFC Small & Midcap Equity respectively. The former is a multi-cap fund with an excellent track record of delivering consistently high returns. The second is a mid-cap fund and will see volatility in the short term. Do keep reviewing the mid-cap fund's returns with peers and the benchmark CNX Midcap. However, given your long-term horizon, we expect the fund to tide over short periods of underperformance and deliver returns superior to the broad market. Together, you can expect a 20 per cent compounded annual return on these two funds, if current performance continues.

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