Fund Talk

I am a 33-year old medical professional. I have direct equity investment of Rs 3 lakh and started investing in mutual funds from August 2008 through an SIP in Reliance Vision. I also have SIPs in the following funds - ICICI Pru Discovery, Reliance Pharma, Reliance Regular Savings Equity and Sundaram Select Midcap. These are monthly SIPs (Rs.1000 each) started during various months in 2009-2010. My only lump sum investment is in HDFC Infrastructure fund (Rs.25,000), bought during NFO, I started a SIP of Rs 1000) in the same fund when it became open ended this month. I am also planning to start SIPs in IDFC Premier Equity fund and Reliance Gold fund. I would like to build a corpus of 1 crore before my husband, a hospitality professional, plans to retire in 2025. Request your suggestions.

Ashitha N

Trichur

You have not mentioned the date of your investments through systematic investment plans. It is important to know this to calculate the returns you have earned so far. We are therefore assuming a base date of January 2010, to arrive at your current corpus size. Your corpus has grown very little over these 15 months given that the market has been on rallying mode; which means you would have purchased every additional unit at a higher cost for a good part of 2010.

With Rs 1000 each month in 5 funds, your SIPs would have grown to a little over Rs 76,000 in all. We assume that your investments of Rs 3 lakh in direct equity, too was not made long ago, and assume a 10 per cent absolute appreciation (that too on a very positive note) on this direct equity portfolio, as markets have been choppy for the last few years.

It is not going to be easy to achieve your Rs 1 crore-target in less than 15 years with the present savings. With income buoyancy, we assume that you would be able to save more in at least 2-3 years time from now. We would like to suggest some changes to your portfolio to help achieve your Rs 1 crore target.

Midcap exposure

Given your steep target, you would have to include mid-cap funds in your portfolio to add that extra returns to your portfolio. Continue your SIPs in ICICI Pru Discovery and switch to IDFC Premier Equity instead of Sundaram Select Midcap.

The former is marginally higher in terms of risk but given your long-term objective, the risk may well compensate by way of adequate returns. To this, add HDFC Equity (stop SIPs in HDFC Infrastructure).

We are hoping that over the next 165 months or so, these funds totalling to SIPs of Rs 3000 per month would return 20 per cent compounded annually. Together with Reliance Pharma (stop SIPs but hold the fund) you would get about Rs 30 lakh if they all manage the above return.

Take stock of the pharma fund's performance and sell out on any exceptional year of performance. Add the money so received to one of the core funds mentioned below.

Core funds

Exit Reliance Vision as well as Reliance Regular Savings Equity. Though both the funds have delivered reasonably, we would like to add more stable funds to your core portfolio. Hence start SIPs in Quantum Long Term Equity and Fidelity Equity instead.

These two funds may not always be in the top performers' list but will ensure lesser volatility to your portfolio. All this can be done with your existing savings.

You would have a sum of close to Rs 75,000 if you sell HDFC Infrastructure, Sundaram Select Midcap and the two Reliance Funds. Use this sum to start a monthly investment of Rs 2000 in HDFC Prudence. Use the systematic transfer plan (STP) to invest. We are hoping that if you can manage with the above lump sum, which will last for another three years, you should be able to ramp up your savings by Rs 5000/month in 3 years or earlier.

As soon as you have some monthly surplus, increase your SIP in Quantum Long Term Equity/HDFC Equity by another Rs 3000 per month for the over the subsequent years (we assume you can start this latest by 2015). Start a SIP for Rs 2000 in Reliance Banking then or earlier. Banking stocks could be one of the few secular themes to hold as their business is not cyclical.

We assume that your above portfolio will earn 15 per cent per annum and result in a corpus of around Rs 50 lakh.

We hope you will manage your direct equity portfolio successfully to earn about 15 per cent annually to achieve about Rs 22 lakh. If you are keen to invest in gold, use the SIP route. We are assuming a 7 per cent return on gold. Note that the last 2-3 years' performance is unlikely to repeat itself in the long term.

You may be wondering what you need to do if you do not achieve the target. The above strategy just about meets your targeted corpus. But that is assuming your portfolio delivers such returns.

To be on the safer side, up your stakes in these funds as and when you have surplus. Also start booking profits and shift to debt when returns are exceptional (say a 75-100 per cent return in a year).

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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