Build a more diversified mutual fund portfolio to meet long-term goals

From a long-term perspective, it would not be a good idea to have such an aggressive, concentrated portfolio with an overwhelming bias towards one segment of the market


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I am 42 and plan to retire by the age of 60. I started investing in mutual funds last year. My portfolio includes: BNP Paribas Mid Cap Fund, Franklin Templeton High Growth Companies Fund, ICICI Prudential Value Discovery Fund and DSP Blackrock Micro Cap Fund. I plan to invest till I turn 60. Is this combination of funds good?

—B.S. Venkatanarayana

If you have invested in these funds for the past year, I am pretty confident that you would have seen some handsome returns in your portfolio. All the funds in your portfolio have substantial exposure to the mid- and small-cap segments of the market, which have done well in the past year.

However, from a long-term perspective (given that you are investing for a period of 18 years), it would not be a good idea to have such an aggressive, concentrated portfolio with an overwhelming bias towards one segment of the market. It would be better to replace a couple of funds with those that cover other segments or market, or broader areas in the market.

For example, you can replace the ICICI Prudential Fund with ICICI Prudential Focused Bluechip Fund, and the Franklin fund with Franklin India Prima Plus fund. Review your portfolio on an annual basis, and reallocate your assets to safer debt funds as you near your target retirement age.

While cleaning my house last week, I found a mutual fund investment receipt of my late father from 2006. I wanted to check if there is some outstanding money to be received on this. What is the process?

—Namita Shah

There are hundreds of crores of unclaimed money in mutual fund investments in India. Most of these monies are from situations such as yours where the holder of the units may have passed away before redeeming them.

The process of checking and claiming the money is quite simple. The statement that you recovered will have a folio number on it. You can call the mutual fund company and request to verify if there is unclaimed money in it by citing this number.

If there is, you can proceed to the next step of retrieving this money from the fund. If there is a nominee on the folio, then that person can easily make the claim by producing a few necessary documents such as the death certificate.

Else, the legal heirs can stake claim by producing the legal heir certificates in addition to the death certificate and a letter of claim. Some fund houses might require a few additional documents such as an indemnity bond. In any case, approaching the mutual fund, finding out about the folio, and following the prescribed steps would be the right way to go about this.

My grandsons are in the US and I want to resume investments in their name here in India. There were some mutual fund investments before they left for US, like in Quantum Mutual Fund and HDFC Mutual Fund. I want to resume them. Can his father, who is working in the US, send money here for investments in his child’s name? What all needs to be done for this?

—Bipin Trivedi

Due to regulatory strictures from the Securities and Exchange Commission (SEC) of the US, several mutual funds in India do not accept investments in the name of people resident in that country. The two fund houses that you mentioned—Quantum and HDFC—are among such fund houses. This means that you will not be able, at least for the time being until the laws change, to invest in your grandsons’ names in India.

The best you can do would be to invest in your own name, with them as the nominee. With regards to their father sending money, it would need to come to your account for you to be able to make such investments. You would be well advised to consult your tax attorney to consider the tax implications of doing that.

When investing in a mutual fund, which scheme should one choose: one with high net asset value (NAV) or that with a low NAV? Should this price gap between the new and old funds influence an investor’s decision?

—Saiyed Salahuddin

When it comes to evaluating the performance of a scheme, the most useful metric to consider is the compounded annual growth rate (CAGR). This metric allows two funds to be compared with each other over the same period, regardless of the age of the funds (old funds versus new funds). As such, it is this metric that an investor should most care about and not the NAV of the fund.

As you have observed in your question, an older fund might have a higher absolute NAV compared to a newer fund. But the older fund might have a better track record of performance over its period of existence. This track record can be observed and compared with the newer fund by evaluating the CAGRs of the two funds over the same time periods. So, please ignore the absolute NAV value of funds and go only with how the schemes have performed over time as indicated by their CAGR.

Srikanth Meenakshi is co-founder and COO, FundsIndia.com.

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