I have investments in about 20 equity funds whose details I enclose. The redemption value of the investments as on date is around Rs 13 lakh. I recently started systematic investment plans (SIPs) for 36 months (Rs 1,000 per month) in Canara Robeco Income Fund and HDFC Prudence. I am aged 52 years, and working in a public sector undertaking, and have another seven and a half years of service. I own a house in which I can live after my retirement. Both my children are married and they are not financially dependent on me.

I need your advice for the following: I can save Rs 10,000 per month now onwards. Please guide me in investing this amount. I want to prune investments already made. I want to reduce the number of funds by closing under performing funds and investing in better ones. I want exposure in equity and debt in the ratio of 50:50.

K.R. Prasad

Hyderabad

You have not mentioned the goal towards which you are keen to save and invest. It is always desirable to start with a goal, work out a targeted corpus and then plan your asset allocation and investments accordingly. However, relying on your current and proposed mutual fund investments alone will leave you considerably short of the sum you would require to meet living expenses post-retirement.

A rough estimation shows that, if your living expenses amount to a modest sum of Rs 25,000 today (as you don't pay rent), you will require Rs 43,000 a month seven years later when you retire, based on a 7 per cent inflation rate.

Assuming you have a life expectancy of 85, the total corpus you will require at 60 to meet those monthly expenses thereafter would be about Rs 1.34 crore.

The mutual fund corpus that you have so far accumulated (Rs 13 lakh), if it grows at 15 per cent a year for the next 7 years (assuming a pure equity portfolio) will lead you to a sum of about Rs 35 lakh by the time you retire. That still leaves a shortfall of about Rs 1 crore in the above target, to be met through other investments.

Reaching a target of Rs 1 crore in 7 years time purely through your mutual fund SIPs would require you to put aside about Rs 94,000 a month over the next seven years, if you follow a conservative asset allocation strategy of 50:50.

Other investments

Now, your actual situation may not be as alarming as the above calculation suggests. Given your employment with a bank, you are likely to have other safe investments already — bank deposits, the accumulated balance in your provident fund account, gratuity and other emoluments due to you at retirement. You may even be eligible for a pension on retirement.

However, we suggest that you take stock of your requirements based on all of the above and work out a plan in consultation with a capable adviser.

Coming to your question on your mutual fund portfolio, yes, it does feature rather a large number of funds. Though your fund choices are all quite reasonable, it would still make sense to prune your portfolio to make it more manageable and easily tracked.

Based on their long term as well as recent track records, we would suggest holding on to these funds alone- HDFC Top 200 and Equity, Franklin Flexicap, ICICI Pru Dynamic Fund and DSPBR Small and Midcap Fund. You can add IDFC Premier Equity a midcap fund to provide a “kicker” to your portfolio returns too. You can redeem your remaining holdings and make sure to switch the proceeds into the above funds.

Pure equity funds

Given that you have only seven years to retirement and need to earn a fairly high return on your investments to build a good corpus, a 50:50 asset allocation may be too conservative for you to achieve your goals. In fact, we would suggest that you either invest the entire sum of Rs 10,000 per month in pure equity funds (HDFC Top 200 and Birla Frontline Equity) would be good choices).

If you don't have the risk appetite, invest the same sum in SIPs in balanced funds such as HDFC Prudence or DSP Balanced, which can give you good risk-adjusted returns.

Do note that using the SIP route in income funds is not advisable. Phasing out your investments in equity funds may improve your overall return, given that equity markets tend to be quite volatile; postponing investments through SIP in equity funds may help you acquire units at lower prices if markets correct.

Given that returns on debt funds are accrued evenly over the year, SIPs do not lead to improved returns and only offer the benefit of disciplined savings.

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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