I invest Rs.3,000 per month in HDFC Taxsaver, Religare Tax Plan, Canara Robeco Short Term, HDFC MIP Long Term and Reliance MIP. I want to invest in equity funds now. Are HDFC Top 200, ICICI Prudential Dynamic and Franklin Templeton Franklin India Prima Plus good funds for the long term?
Currently, you are investing in a portfolio that has about 45% in equities and the remaining in debt. For the long term, that is a very conservative asset allocation. Moreover, there is uncertainty about the status of equity-linked savings schemes on whether or not they will qualify for 80C tax exemption after this financial year. Considering these, you will do well by reshuffling your portfolio in favour of diversified equity funds.
The funds that you have chosen are good but they all belong to the large- and mid-cap category. It will be better to take exposure to the small- and mid-cap category as well. Funds such as ICICI Prudential Discovery and/or HDFC Mid-Cap Opportunities will be good additions to your portfolio.
I want to invest in monthly income plans (MIPs). Is HDFC MIP Short Term a good fund? How do I compare MIPs?
MIPs are debt-oriented hybrid mutual funds. A small portion of MIP is invested in the equity market and the rest in debt. The equity portion is in the range of 5-25%, depending on the fund manager’s perception of where the market is. Such funds are suitable for people who are risk-averse but want some exposure in equities over one to two years.
Comparing such schemes, hence, is a matter of comparing their respective performance, while taking into account the risk taken by the fund manager. Also, since the dominant component of the portfolio is debt, one should look at the average credit rating of debt securities in the portfolio.
We can consider an example to see how such a comparison will work. You have mentioned HDFC MIP Short Term. Let’s compare this fund with the category leader Reliance MIP. If you look at the performance of these funds, you will see that Reliance MIP has delivered better performance for one-, two-, and three-year time frames. However, if you look at the portfolio of two schemes, you will see that Reliance MIP has close to 20% allocated in equities, while HDFC MIP has less than 15% in equities. You will also see that the average duration of the debt holdings in the Reliance fund is higher than the HDFC fund. This makes the debt portfolio more sensitive to interest rate movements. So in both aspects, the Reliance fund manager has made riskier choices. Thus, as the performance shows, the fund has delivered higher returns. So while one can say that both are good funds, the HDFC fund would suit a conservative investor, while the Reliance fund will suit a person with a higher risk appetite.
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Srikanth Meenakshi is founder and director, FundsIndia.com