Fund Talk

I am 34 years old, working in a private company and save Rs 12,000 a month through SIPs in mutual funds. I would like to purchase a house after five years, for Rs 35 lakh (Rs 15 lakh funded through loan). I would like to be an aggressive investor for the next five years, till my objective is fulfilled. I have SIPs of Rs 1,000 each in HDFC Equity, HDFC Top 200, HDFC Mid-Cap Opportunities, Reliance Banking, Reliance Pharma, ICICI Dynamic, Birla sunlife Dividend Yield Plus, SBI Gold Fund, SBI Emerging Business and DSP BR Equity fund. I am also invested in IDFC Premier Equity through SIP of Rs 2,000 a month. Kindly let me know whether any modification is required in my portfolio.

J.Swaminathan

You have laid out a goal well with a clear time-plan. These are critical to achieving a financial or asset building objective.

Having said that, you will have to set yourself a reasonable time frame based on the amount of surplus you have and the returns that markets can generate.

With Rs 12,000 investment per month, your investment should earn a return of 37 per cent per annum for you to be able to achieve your goal. Even the most aggressive of investments is unlikely to deliver such spectacular returns unless you have a couple of extraordinary years of stock market performance. But we cannot count on such miracles and will have to remain conservative in planning.

Diversified equity funds as a category have delivered just 6-7 per cent returns over the past five years. The best performing ones have delivered compounded annual returns of 15-17 per cent over this timeframe. If you wish to achieve the goal within five years, you need to invest Rs 23,000 a month, which should earn 15 per cent annually. If that sounds difficult, you can consider increasing the timeframe to, say, 10 years.

If the price of Rs 35 lakh property increases by 10 per cent a year, you will end up requiring Rs 48 lakh for buying the same.

If Rs 12,000 is invested for 10 years and the investment earns a reasonable 15 per cent per annum, you will end up with a corpus of Rs 33 lakh. For the balance amount, you can take a loan.

Coming to your selection of funds, having 11 funds will make it difficult to track the performance. Also, spreading Rs 12,000 over so many funds may also dilute performance.

Among the funds you have stated, invest Rs 5,000 in IDFC Premier Equity, Rs 3,000 in HDFC Mid-cap Opportunities. These two are mid-cap funds with an impressive track record over the past four-five years.

You can invest Rs 2,000 each in ICICI Pru Focussed Bluechip Equity and Fidelity Equity for diversification.

Many of the funds that you have mentioned, especially from the HDFC and Birla stables, are funds with strong long-term track record, but we have taken cognizance of your high-risk appetite and suggested aggressive funds with a sound track record. Steer clear of sector funds unless you can take a decisive call on their fortunes. If your investible surplus increases, invest a maximum of 5 per cent of your surplus in gold ETFs such as those from Goldman Sachs.

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I am 35. Please let me know if my SIP portfolio is appropriate or not. My goal is to generate corpus for my retirement and my son's education (he is one year old now). Currently, I can invest a total Rs 15,000 per month in SIPs (including those indicated below): Rs 2,500 each in DSP Top 100 and Reliance Gold Fund, Rs 1,500 in Birla Sun Life Frontline Equity, Rs 2,000 each in Reliance Regular Savings Equity and Reliance Diversified Power Sector, Rs 1,000 each in ICICI Pru Infrastructure, DSP BR T.I.G.E.R, SBI Magnum Tax Gain and Sundaram Tax Saver.

Sandeep

You have too many funds in your portfolio. A clutch of five-six funds is enough for you to achieve diversification and derive returns of 12-15 per cent over the long-term.

Except DSPBR Top 100, you can exit all other funds that you have mentioned. The track record of the others does not inspire confidence. While Reliance Regular Savings Equity has done well over a three-year period, it is a high-risk fund. You should be able to earn the desired return without holding such aggressive funds.

Invest Rs 3,500 each in HDFC Equity, Quantum Long-term Equity, ICICI Pru Focussed Bluechip Equity and Rs 2,000 in IDFC Premier Equity. If you must have tax saving funds, invest in Canara Robeco Equity Tax Saver. Remember that ELSS funds may lose their tax deduction status if the current draft Direct Taxes Code is implemented.

We assume that you will retire at 60, which leaves a good 25 years for you to accumulate a sufficiently large corpus. An investment of Rs 15,000 a month for 25 years will leave you with Rs 4.8 crore if the investment earns 15 per cent annually. Review your portfolio at least once every year.

You can start investing in your child's education after a few years when you have a higher investible surplus. Consider starting a SIP in HDFC Children's Gift - Investment Plan and Canara Robeco Diversified Equity.

We hope you have exposure to other asset classes as well.

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