I am 37 years old and my net income is Rs 65,000. I invest Rs 2,500 per month in HDFC Top 200 and IDFC Premier Equity. I also invest Rs 5,000 per month in Sundaram Equity Plus. I have taken the growth option for all funds. I invested Rs 50,000 in Sundaram Capital Protection Series. I expect a corpus of Rs 50 lakh after 10 years for my family and my retirement after 20 years. Is my fund selection fine?
To accumulate a corpus of Rs 50 lakh in 10 years, you would need to invest about Rs 21,000 per month (assuming a 13% annual return from the equity markets). To do the same in 20 years, you would need to invest about Rs 5,000 per month. The funds in your portfolio are mostly good. HDFC Top 200 and IDFC Premier Equity funds are large-cap-oriented and mid-cap-oriented funds, respectively, and are both proven performers in their segments. The third fund, Sundaram Equity Plus, is a new fund (launched three months back) that does not have a track record. Given that you are investing 50% of your portfolio in this fund, you keep a close watch on whether it is delivering according to your expectations and performing well relative to its peers.
I am 46 years old. I am saving mainly for retirement (10-12 years ahead), daughter’s education (five years from now) and her marriage (10-12 years later) and lastly for my son’s education (three-four years later). I invest in mutual funds as well as shares. How much should I allocate to large-cap, large- and mid-cap, multi-cap, mid- and small-cap and balanced funds?
Designing a good mutual fund portfolio is a simple two-step process. The first step is to decide on the asset allocation—what proportion of the investment will be allotted to what class of funds. In this step, the longer the duration of the investment, the riskier the overall portfolio can be. To decide on this, one can use this order of risk grades from least risky to most among equity funds—balanced funds are the least risky, followed by large-cap funds, large- and mid-cap funds, multi-cap funds, mid- and small-cap funds and finally sectoral/thematic funds. The second step is to select good schemes in the categories chosen in the first step using metrics such as ratings and long-term track record.
You would do well to design separate portfolios for each of your goals. For the goal with a three-four years time frame, stick to balanced and large-cap funds. For a time frame above five years, you can allot half the portfolio to large-cap funds and the remaining to multi-cap and balanced funds. For portfolios beyond 10 years, you can split the portfolio into three parts—50% in large-cap, 25% each in multi-cap and small- and mid-cap funds.
Srikanth Meenakshi is founder and director, FundsIndia.com.
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