Your Fund Portfolio

I am 33 years old and currently unemployed. My goal is wealth creation, beating inflation rates. All my savings right now are in fixed deposits. I would like to invest a part of the interest earned from the FDs in mutual funds. I would like to invest (SIPs of ₹1,000 each for the time being) in two mutual funds schemes — one large-cap and one index fund. My risk category is conservative, and I plan to stay invested for at least 10 years or more.

For the large-cap category, I am planning to invest either in Axis Bluechip or ICICI Prudential Bluechip, whereas for the index fund I have two options in mind — HDFC Index fund - Sensex Plan or ICICI Pru Nifty Next 50 Index Fund. Please guide me. I plan to invest through the mutual funds utility website (www.mfuindia.com).

Dundi Ajay

It is true that investing in equities over the long term will help generate inflation-beating returns. But since you are unemployed, it is a better idea to preserve capital by investing in fixed deposits and use the monthly/quarterly interest outgo for your routine expenses. However, if you feel you have some surplus from the interest income and are willing to take risk, you can invest in large-cap or index funds.

For the large-cap category, both Axis Bluechip and ICICI Pru Bluechip are good choices. You can also consider Mirae Asset Large Cap. Investing in index funds is catching up in India on two counts — one, the narrowing of returns between actively managed large-cap funds and passively managed index funds; two, the lower expense ratio of the latter which indirectly boosts returns. Again, both HDFC Index Fund – Sensex Plan and ICICI Pru Nifty Next 50 are good choices in this category.

I am a 29-year-old salaried employee with an annual income of around ₹25 lakh. I have no immediate financial goals except wealth creation over a period of time, say, 10 years. I have been investing ₹5,000 each a month in the following funds through the SIP mode for the past 20 months: Aditya Birla Sun Life Frontline Equity, HDFC Mid-Cap Opportunities and Principal Emerging Bluechip. Recently, I started investing in Mirae Asset India Equity at ₹5,000 a month, which has now become Mirae Asset Large Cap. Kindly advise me as to whether it is okay to continue with this large-cap fund, as I already invest in ABSL Frontline Equity. Should I switch over to another fund such as Mirae Asset Focused? All investments except the one in Principal Emerging Bluechip are in direct plans.

Balakrishna Rao Kadiri

It is good that you have started investing in equity mutual funds in your 20s and have an investment horizon of 10 years. Over the long term, investment in equity funds have the potential to outperform returns of debt investments. If you don’t have any specific goals to be met after 10 years, you can extend your horizon to save for specific goals. It can be for part-funding your home buy or even towards your retirement.

As far as your funds go, even in its earlier avatar under the multi-cap category as Mirae Asset India Equity, the fund had predominantly invested in large-cap stocks. So, there has been not much of a change although the fund name and category have changed. Thus, you have been putting 50 per cent of your investments into large-cap funds (ABSL Frontline Equity and Mirae Large Cap), and 25 per cent each in the large- and mid-cap category (Principal Emerging Bluechip) and the mid-cap category (HDFC Mid-Cap Opportunities). This allocation is suitable for someone with a moderate risk appetite. All funds have delivered good returns over the long term and you can continue investments here. Mirae Asset Focused Fund was launched in mid-May 2019 and has no track record to back it. It is best to avoid investments here.

Since all your investments except that in Principal Emerging Bluechip are in direct plans, you can switch Principal Emerging Bluechip, too, to direct if necessary. Direct plans have lower expense ratios and will help indirectly boost returns over the long term. But keep in mind that the switch will mean you may have to pay capital gains tax as it will be considered a sale.

Send your queries to mf@thehindu.co.in

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