Ask Mint Money | A debt portfolio is not really suited for systematic investing

I have monthly systematic investment plans (SIPs) in the following funds: DSP BlackRock Top 100 (Rs 3,000), HDFC Top 200 (Rs 3,000), HDFC Equity (Rs 2,000) and ICICI Prudential Discovery (Rs 2,000). SIPs are getting over by this month. Should I continue my SIPs in the same funds or should I make changes?

—Sudheer Itharaj

You have a well-constructed SIP portfolio with top-rated funds that should deliver well over the long term. You are investing 60% of your portfolio in large-cap-oriented funds and the remaining 40% is split between riskier categories such as multi-cap and small/mid-cap funds. If, as the all-equity nature of your portfolio indicates, you are investing for the long-term (at least five years), then this would be a good time to continue investing. Given where the markets are today and likely to be in the near future, this should represent a good time to accumulate units at good value in well-managed diversified mutual funds. Continue your SIPs in the funds that you are investing in currently.

I am 45 years old and want to invest in AIG Short Term, Canara Robeco Short Term, Birla Sun Life Monthly Plan, HDFC MIP Long Term and UTI Short Term Income. I will invest a total of Rs 20,000 every month in these for 15 years. Are these funds good for the long term? I don’t want to take any risk.

—Ganesh Pawar

Systematic investing offers two advantages. One, the benefit of rupee-cost averaging and two, it enables investing in a disciplined and regular manner. Among these, the advantage of rupee-cost averaging manifests only if the underlying portfolio has volatility of prices—that is, its prices move up and down in an unpredictable fashion. Hence, typically, equity products (stocks, diversified equity funds) that display such volatility are the ones that are best suited for SIPs. Your portfolio is filled with debt funds with very little equity component to it. Two funds are monthly income schemes that have 10-15% of equity allocation in their portfolio, but the others are pure debt schemes. Such a portfolio is not ideally suited for systematic investment.

Also, the key goal for a long-term portfolio should be to beat inflation. The “real return” of a portfolio is the actual returns less the rate of inflation. In the case of a pure debt portfolio, the real returns are likely to be zero or in the negative over the long term, which means your money may be worth lesser than when you invested it. For a long-term portfolio, even a risk-averse investor would do well by allocating a portion to equity. In your case, I would suggest replacing the short-term funds with large-cap or large- and mid-cap funds such as Franklin India Index NSE Fifty, UTI Dividend Yield and ICICI Prudential Dynamic.

Srikanth Meenakshi is founder and director, FundsIndia.com

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