Fund Talk

I am 35 years old and want to build a corpus of Rs 25 lakh in 10 years. I have shortlisted the following funds: ICICI Pru Focussed Bluechip, UTI Opportunities, IDFC Premier Equity, Quantum Long-term Equity and Reliance Equity Opportunities. Kindly suggest whether the funds selected are suitable or if any changes are to be made. I can invest a sum of Rs 15,000 per month. Please advise how much I should invest in each of the funds so that I achieve the said corpus. If the need arises, I can increase my monthly savings by another Rs 5,000.

Deepa M C

The first thing to note when you enter the world of investment is the return expectations on various asset classes. Given your age, time horizon and monthly investment amount, it can be stated that your returns expectations are extremely modest. Consider this: If you invest Rs 15,000 every month and you would want to build a corpus of Rs 25 lakh over a 10-year period, all you need is a little less than 7 per cent returns for you to achieve the goal. You can attain this goal by merely investing in a normal recurring deposit that offers you 9-10 per cent interest rates and most banks are offering such rates!

The second important aspect about investment is to link it to a goal. The important ingredient here is to understand the risk you are willing to take. These together — the target amount you wish to achieve, a goal with a time horizon and the risk appetite — will decide the amounts and avenues for investments.

Coming specifically to investments in mutual funds, over a 10-year period, the best performing diversified equity funds have given returns in excess of 25 per cent compounded annually. Of course, past record may not be replicated in the future, but even then, returns expectation of 12-15 per cent should be quite reasonable.

The funds that you have shortlisted are mostly those with a track record of delivering steady (market beating) returns and have done reasonably well in containing downsides as well. That said, it could do with some tweaking. We are assuming that you have a low- to medium-risk appetite, given your age.

Invest Rs 4,000 each in ICICI Pru Focussed Bluechip Equity, Quantum Long-term equity and IDFC Premier Equity. Between these funds, you would have a well-diversified portfolio comprising large-cap, multi-cap (leeway to choose a blend of mid- or large-caps) and mid-cap funds.) The remaining Rs 3,000 can be invested in HDFC Prudence, a balanced fund with a superior track record. This will help temper the risk profile of your overall portfolio. While UTI Opportunities does have a sound track record, among funds with a multi-cap investing mandate Quantum Long-term Equity makes for a better choice, given its track record. If these funds deliver a conservative 12 per cent annual returns over a 10-year period, you should comfortably reach a target of Rs 35 lakh.

Please also note that building a corpus means that you invest in different asset classes — equity, debt, gold and if possible real-estate, in a proportion appropriate for your age and risk appetite. As interest rates are attractive with several banks, starting a long-term recurring deposit for your debt investments would be a good idea. For gold, consider investment in ETFs such as those from Goldman Sachs.

* * * I am investing Rs 500 in HDFC Top 200, Rs 500 in DSP Blackrock Top 100, Rs 1,000 in Birla Sun Life Frontline Equity, Rs 500 in Reliance Gold Savings, Rs 250 in Sundaram Select Midcap and Rs 250 in Reliance Banking funds. I am 28. I want to achieve a corpus of Rs 1 crore in 25 years. Will my portfolio help me achieve this target?

Lokesh

It is good that you have started your investments in mutual funds reasonably early in your life and have given yourself a long investment horizon for achieving your goal. But your selection of fund suggests that there is limited clarity on parking your funds. Besides, Rs 3,000 should not be spread into too many funds as it will limit the benefit of diversifying in funds. If your idea of going for so many funds was diversification, then in the light of your stated total monthly investment, investing in one or two funds would suffice and be more meaningful.

We suggest that you restrict your monthly SIP of Rs 3,000 to HDFC Top 200 alone. But if you must, invest Rs 2,000 in the above fund and Rs 1,000 in Quantum Long-term Equity. As and when you are able to generate a substantially higher surplus, you can consider adding more funds. For investment in gold, we would suggest the ETF route. It might be difficult to attain a corpus of Rs 1 crore in 25 years if you invest Rs 3,000 monthly, assuming even 15 per cent annual returns over such a long period. You can, therefore, try to increase your SIP amounts after a few years.

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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