Your Fund Portfolio

I have been investing a total of ₹15,000 every month through SIPs in the following funds for the last five years: IDFC Premier Equity, SBI Emerging Business, Reliance Equity Opportunities, IDFC Tax Advantage, Reliance Tax Saver, SBI Magnum Tax Gain (now stopped).

I am an aggressive investor. I can increase SIPs by ₹25,000. I need ₹5 crore in the next 25 years. Shall I add to the above funds or choose new funds ? Besides, I have a lumpsum investment of ₹35,000 in IDFC Tax Advantage, Dividend option. Should I move to growth option?

Also, every 2-3 years, fund performance keeps changing. So, is it a good idea to stop investments in the underperformers and start a fresh SIP? But if I follow this approach, I will end up having multiple funds, which is not advisable.

Reetesh

Since you have indicated that you can increase your SIPs by ₹25,000 a month, we have assumed that you can invest ₹40,000 every month from now on.

If you do so for the next 25 years and your portfolio earns a compounded annual return of 12 per cent, you will be able to achieve a corpus of ₹7.6 crore at the end of the 25-year period.

Along with this, you will have the corpus from the ₹15,000 you have invested for the last five years as well. Hence, you look more than comfortably placed to reach your target.

Coming to your funds, your portfolio definitely needs a makeover. For one, you have some underperformers such as IDFC Premier Equity which sports returns lower than its benchmark over one- and three-year periods. Reliance Equity Opportunities too has been an iffy performer.

It lags the benchmark over a three-year period, but has pulled up its socks in the last one year. You can choose from other stable performers in the mid- and multi-cap space.

Also, it is not clear why you have chosen three ELSS funds. One or two would suffice. If you have more to save under Sec 80C , you can consider post office instruments such as NSC or PPF. This will also help diversify your investments between debt and equity.

Rejig your portfolio as follows: Invest ₹5,000 each in Aditya Birla Sun Life Top 100, Franklin Prima Plus and ICICI Pru Focused Bluechip Equity, which are solid large-cap oriented funds.

Put in ₹4,500 each in Kotak Select Focus and L&T India Value, which are multi-cap funds with a consistent track record of high returns. You can invest ₹4,000 in IDFC Tax Advantage, for tax saving purposes. This fund takes 25-30 per cent exposure to mid- and small-cap stocks across all market conditions and is hence suitable for a high risk appetite.

The remaining ₹12,000 can be equally divided among SBI Emerging Businesses, L&T Midcap and Mirae Emerging Bluechip which are good mid-cap funds.

According to this allocation, you will have about 35 per cent of investments in safer large-cap oriented funds and the remaining 65 per cent in mid-cap and multi-cap funds, which will suit your aggressive profile.

As far as the lumpsum investment in IDFC Tax Advantage goes, you can switch to the growth option. From April 1, 2018, onwards, dividend option in an equity fund gets less tax-efficient due to the imposition of long-term capital gains tax. Under this, while gains only over ₹1 lakh are taxed, dividend payouts will be taxed whether they exceed ₹1 lakh or not. Hence, the dividend option loses its sheen.

Since you have a long-term investment horizon, it is better to review performance of the funds once in a while and weed out laggards. Otherwise, you may be throwing good money after bad and your returns may not be commensurate with the risk you may be taking.

One good thumb rule is to move to a new fund if your existing investment has underperformed its benchmark at least over a three-year period. Yes, if you stop SIPs in some funds over the years and move to new funds, you may end up with several funds in your basket. However, there is no strict rule as to how many funds you should hold or how much is too much. A compact portfolio is recommended predominantly from the point of view of easy monitoring and less paper work.

Send your queries to mf@thehindu.co.in

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