Fund Talk - Focus on long-term goal ::Business Line

In the long run, it is important to understand that a balanced portfolio is created by investing in equity, debt, gold and if possible real estate, with the proportion depending on your surplus, risk appetite and age.Book profits in case of abnormal rallies in the market and move to safer debt avenues.

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I am 32 and work for a bank. I earn Rs 4.8 lakh a year. I am planning to start an SIP in three mutual funds. My short-term goals require me to raise around Rs 8-10 lakh within the next five years or so.

My long-term goals require me to accumulate around Rs 30 lakh in the next 10-12 years. What type of funds would you recommend? What should the monthly SIP amount be in these three funds? Would my portfolio be enough to achieve my goals?

Onal Dcunha

It is good to note that you have clearly delineated medium- and long-term goals and also the amounts you would require. But these details alone are not enough for us to suggest a suitable plan and a set of funds.

You have not stated the amount of disposable income or surplus that you generate, other financial commitments such as loan EMIs or monthly expenses. Given the lack of information, we suggest a plan based on certain assumptions.

If what you have stated is your post-tax salary, you would be earning Rs 40,000 a month. We assume that you will be able to save around 30 per cent of your salary or Rs 12,000 every month.

Also, it is assumed that you have investments in other asset classes such as debt and to some extent gold. If you invest Rs 12,000 every month for five years and if the returns are 11 per cent, you will end up with around Rs 9.5 lakh.

Since the tenure is only five years, we cannot suggest an aggressive portfolio. The Rs 12,000 can be split as follows: invest Rs 3,000 each in Quantum Long term Equity and ICICI Pru Focused Bluechip, UTI Dividend Yield and HDFC Balanced. This portfolio would give you blend of multi- and large-cap schemes as well as a balanced fund thrown in for added safety.

Given our assumption about the savings that you can muster each month, you would be left with no further surplus for your long-term goal.

However, start saving for your long-term goal after four or five years, that is, as you get closer to your medium-term goal. By then, your surplus will also increase significantly.

Thereafter, if you can invest Rs 18,000 every month for eight years, you can reach your target of Rs 30 lakh, assuming returns of 13 per cent.

It would be difficult to predict which set of funds would be the best four or five years hence.

But going by past track records, you can consider investing Rs 4,000 each in UTI Opportunities, IDFC Premier Equity, HDFC Equity and ICICI Pru Focused Bluechip.

You can invest the balance Rs 2,000 in Canara Robeco Equity Diversified.

In the long run, it is important to understand that a balanced portfolio is created by investing in equity, debt, gold and if possible real estate, with the proportion depending on your surplus, risk appetite and age.

Review your portfolio once a year and take stock of funds that give flat returns and rebalance accordingly.

***I am 35. I have been investing Rs 2,500 every month in DSPBR Top 100, ICICI Focused Bluechip, IDFC Premier Equity and Sundaram Select Midcap. I also invest Rs 2,000 a month in Birla SL 95 and HDFC Prudence.

I have been making investments since January 2010. Should I continue with this portfolio? My target is to have a corpus of about Rs 1 crore after 15-16 years. I have a good risk appetite.

Mohanlal

You are very much on course to achieve your target. By giving yourself 15-16 years and by investing enough, you will be able to get to Rs 1 crore without much difficulty.

Almost all the funds that you have chosen have a sound track record over the long term. But your returns may be increased with a little tweaking.

You are investing Rs 14,000 over six funds. You must restrict the number of funds to four or five.

Besides, since you have a fairly long investment horizon, you need not hold two large-cap funds.

DSPBR Top 100 has a good track record. But you can invest Rs 3,000 in Quantum Long Term Equity, a multi-cap fund that has performed excellently across market cycles.

Invest Rs 3,000 each in ICICI Pru Focused Bluechip and IDFC Premier Equity. Sundaram Select Midcap has a reasonable record. But you can consider switching to a stronger performer in HDFC Mid-cap Opportunities and invest Rs 3,000 in it. We have suggested two mid-cap funds as you have stated that you have a good risk appetite.

Restrict yourself to one balanced fund. You park the balance Rs 2,000 in HDFC Balanced. If your portfolio returns 13 per cent over the next 16 years, and your existing investments too grow at a reasonable rate, you will comfortably reach Rs 1 crore.

Monitor your portfolio periodically and weed out underperformers. Book profits in case of abnormal rallies in the market and move to safer debt avenues.