Your Fund Portfolio

KVH Raghavendra Rao

It is good that you have begun investing in SIPs with a horizon of 25 years. Long-term investments in equities bring down the risk quotient and have the potential to deliver returns in early double digits.

If you invest ₹25,000 a month for the next 25 years and your investments earn a conservative 12 per cent compounded annual return, you will have a corpus of ₹4.7 crore at the end of the period. If you plan to retire at 55-60 years of age, this saving could help fund your expenses post-retirement.

Regarding your fund choices, a bit of course correction is needed.

For the ₹25,000 you are investing every month, it is better to diversify across fund houses and categories of funds. Also, it is better to avoid exposure to thematic funds such as the MNC fund as part of your core portfolio, where you are saving for a goal over the long term. Theme funds usually pass through seasons in which they go in and out of favour.

Entry and exit into theme funds need to be timed well to reap the benefit of a rise in NAV when the theme is in vogue. Hence, they can, at best, be part of your satellite portfolio.

You can divide the monthly SIPs totalling ₹25,000 as follows. Invest ₹5,000 each in HDFC Top 100 and Axis Bluechip, two large-cap funds with a good track record. Invest ₹4,000 each in Kotak Standard Multicap and Invesco India Contra. The remaining ₹7,000 can be equally split between L&T Midcap and SBI Small Cap.

This combination implies 40 per cent investment in slightly low-risk large-cap-oriented funds, about 30 per cent in moderate-risk multi-cap funds and another 30 per cent in high-risk mid- and small-cap funds.

As far as your lump-sum investments go, L&T Emerging Opportunities is a close-ended fund investing in small-cap stocks. Though close-ended funds seek to give investors the benefit of long-term investing by making them stay put through market ups and downs, it is not recommended. Similar themed open-ended funds (small-cap funds, in this case) come with a track record across market cycles and give investors the choice of selecting a fund based on how well it has performed.

More importantly, open-ended funds give an exit opportunity at any point in time, which could be used either for cutting losses or locking into gains in case of sharp rallies.

On the other hand, close-ended funds get redeemed only on the maturity date and the investor has to take whatever returns are offered at that point. While the units of close-ended funds are listed on the exchanges and can be sold any time during the lock-in, liquidity is very thin. Selling at the NAV may not be possible.

Reliance Vision has underperformed its benchmark over both short and long time-frames of one, three, five and 10 years (point-to-point returns). Assuming you invested exactly six years ago, in early July 2019, the fund sports a return of 14 per cent. While this is not bad per se, it lags its peers in the large- and mid-cap fund category.

It is a good time to sell your investments here and move to better performers such as Mirae Asset Emerging Bluechip. Use the SIP route to invest here, though.

We hope that you are not putting all your eggs in one basket and have enough debt investments in fixed deposits or post office savings schemes such as the Public Provident Fund (PPF) and the National Savings Certificate (NSC). If not, you can invest the sale proceeds of Reliance Vision across these investments.

Send your queries to mf@thehindu.co.in

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