Hold equity funds for 7-10 years

For a short investment horizon, put your money in balanced schemes.

I have been investing Rs 70,000 in the following mutual funds every month through the Systematic Investment Plan route: UTI Opportunities – Rs 15,000; Quantum Long Term Equity – Rs 15,000; ICICI Pru Focused Bluechip – Rs 10,000; IDFC Premier Equity – Rs 10,000; HDFC Midcap Opportunities – Rs 10,000; ICICI Pru Discovery – Rs 10,000.

My time horizon is 7 years and I would like to accumulate Rs 1 crore in this period. Is the target achievable? Do I need to modify my portfolio?

David C. A.

You have not stated when you started investing in these funds. Assuming you started recently, you can achieve your target if your portfolio manages to deliver a little less than 15 per cent returns annually for the next seven years.

The target is not unreasonable and can be achieved with an aggressive portfolio, of the type that you now hold. The allocation that you have made across schemes is quite appropriate. You have chosen a set of proven high-quality schemes. But with three mid-cap funds in your portfolio, there is a risk of high volatility.

Therefore, you will need to monitor your portfolio closely and book profits at regular intervals or when there is a sharp rally in the markets.

With such a large sum allocated for mutual fund SIPs alone, we hope you are left with sufficient surplus to invest in other avenues, such as debt (FDs, RDs, FMPs, NSC), gold and real estate so that you are able to build a balanced portfolio.

***

I am a 21-year-old student, pursuing a course in chartered accountancy. I manage to build up a surplus of Rs 3,000-4,000 a month. I wish to invest Rs 1,000 a month through the SIP mode in ICICI Pru Focused Bluechip and HDFC Top 200 and also start putting money in a recurring deposit scheme.

I have an investment horizon of 3 to 5 years. Do I need to make any changes to the portfolio?

Ashwin Toshniwal

It is nice to note that you are managing to save reasonable sums even while studying to complete your CA course. You have made the right move in trying to invest the surplus in potentially high-yielding avenues, such as mutual funds.

But your time horizon is too short to take exposure to equity funds. For a relatively short investment horizon of 3 to 5 years, you would be better off putting money in balanced schemes.

Your time-frame must be 7 to 10 years if you want meaningful, inflation-accounted returns from investments in equity mutual funds. You have also not specified the goal for which you are saving.

For an investment period of 3 to 5 years, you can consider investing in Tata Balanced and HDFC Multiple Yield 2005. The former is an equity-oriented balanced fund whereas the latter is a debt-oriented one. Invest Rs 1,000 in each.

Put the rest of your savings in a recurring deposit. As you complete your course and start earning more, you can consider equity funds for longer-term goals.

***

I am 32 years old and work for a private sector company. My investments in mutual funds through the SIP route over the last one year are: Rs. 3,000 in IDFC Premier Equity; Rs 2,000 in Sundaram Select Midcap, HDFC Top 200 and ICICI Pru Discovery Fund; and Rs 1,000 in Franklin India Bluechip.

My risk appetite is medium to high, while my investment horizon is 15 years. Please let me know if my current portfolio needs to be reorganised . Also, if I have to invest another Rs 5,000 per month, which schemes should I go for?

Harsha

You have done the right thing by investing for the long term of 15 years. But you may need to make a few changes in your portfolio so that you can derive optimal benefits.

Given that you have invested in as many as three mid-cap funds, your risk appetite seems to be on the higher side, though you have sought to balance it by opting for a couple of large-cap funds. Since you already have a couple of quality mid-cap funds in IDFC Premier Equity and ICICI Pru Discovery, you can stop further investments in Sundaram Select Mid-cap. Invest Rs 3,000 each in both the schemes.

HDFC Top 200 and Franklin India Bluechip have excellent long-term track records, but have not done as well in the past couple of years. You can stop further investments in these schemes. Instead, invest Rs 2,000 each in Birla Sun Life Frontline Equity and UTI Opportunities.

If you want to invest another Rs 5,000, you can consider adding Canara Robeco Large Cap+ in your portfolio and park Rs 2,000 in the scheme. The balance Rs 3,000 can be split equally across the other four schemes mentioned earlier.

Since you have a long investment horizon, you must invest in other avenues such as debt, gold and real estate. In fact, if you do not have any surplus, apart from the additional Rs 5,000 that you mentioned, you can consider parking the sum in a PPF account. Review your portfolio once every year to take suitable corrective actions and to rebalance.

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