I want to start a systematic investment plan (SIP) for around Rs 6,000 per month. I want to invest for at least five years and expect returns that are better than that from fixed deposits. I plan to invest Rs1,000 each in HDFC Top 200, DSP BlackRock Top 100, IDFC Premier Equity fund Plan A, HDFC Prudence, HDFC Equity, and ICICI Prudential Gilt Inv PF. Is the fund choice okay?.
Your portfolio allocation is about 50% in large-cap or large-cap-oriented funds and the remaining is split between a small/mid-cap fund, a debt fund and a balanced fund. While the fund choice is good, from an asset allocation standpoint you don’t need a pure debt fund for a long-term portfolio. Also you have a hybrid fund (HDFC Prudence), which has a debt component in it.
Also, for IDFC Premier equity fund, the minimum SIP investment required is Rs 2,000 per month. So what you can do is move your pure debt fund allocation to IDFC Premier equity fund and make it Rs 2,000. That way your portfolio would be 50% in large-cap-oriented funds, 35% in a small/mid-cap fund and the rest in an equity-oriented hybrid fund.
I plan to go abroad for studies in 2013. I can invest Rs15,000 every month in mutual funds (MFs). Please help me build a portfolio that will assure me decent returns by then.
Given that you only have two years for your investment, you can’t get too aggressive with your portfolio. If you go with pure equity funds, you would need to accept a reasonable risk that there may be erosion of capital by the time you need your money back. So you would need to turn to funds that invest either purely in the debt market or in a combination of debt and equity markets. Your portfolio should invest about 70-80% in debt instruments and remaining in equity to lessen the probability of losing capital.
One way to do it is invest in a basket of debt-oriented MFs such as Reliance MIP, Canara Robeco MIP and Birla Sunlife Monthly Income funds. These funds invest about 80% in debt instruments and the remaining in the equity market.
Another way to do this is to do the debt-equity split yourself. For example, you can invest Rs12,000 every month in a short-term debt fund such as Templeton India Short-term income fund or DWS Short Maturity fund. The remaining Rs3,000 can be invested in a pure equity fund such as HDFC Top 200 or DSP BlackRock Top 100 equity fund. The advantage of this method is that you have control over the choice of the debt and equity funds. Please be aware of the exit load on your equity funds which will be about 1% for redemptions within one year of investment.
Srikanth Meenakshi, Founder and director, FundsIndia.com
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