Photo: iStock
Photo: iStock

Focussing mutual fund ratings akin to looking at the rear-view mirror while driving

Do not get distracted by ratings and rankings of funds as long as the funds are performing well in the time period you have invested them for

I am 29 and I earn Rs45,000 a month. My goal is to have Rs1 crore in 15-20 years. I have SIPs of Rs1,000 each in— Axis Long Term Equity Fund, Reliance Tax Saver (ELSS) Fund; Franklin India High Growth Companies Fund, and HDFC Equity Fund - Direct Plan - Growth. The rankings of my funds with HDFC and Franklin has come down. So, which funds should I switch to? Should I redeem these funds and start new investments? Also, I want to invest additional Rs5,000 a month as I am closing my postal life insurance. I want to invest Rs1,000 a month in Reliance Small Cap fund. Can you suggest a few more? For the next 8 months, I have a surplus of Rs5 lakh. Which liquid/ultra short-term fund should I invest in?

—Bhanu Ahirwar

Please do not be distracted by ratings and rankings for funds that are currently in your portfolio. As long as the funds are performing well in the time period you have invested them for, as these funds are doing, you should hold on to them. Ratings look at past performance and looking at them for your current investments is akin to looking at the rear-view mirror while driving. If the volatility of a fund is too much for you, you can consider switching the HDFC fund to HDFC Balanced fund. To address your SIP situation, you would need to save and invest Rs10,000 a month to reach your goal of Rs1 crore in 20 years (assuming a compounded annual growth of 12%). So, over the next few years, you should increase your Rs5,000 a month SIP to that level. It is, however, a good start to move to a term insurance plan and get started with the amount in SIP. You can add funds such as Aditya Birla Sun Life Frontline Equity fund and Franklin India Prima Plus to your SIPs (at Rs2,000 each). Regarding liquid or ultra short-term funds, you could choose funds such as Franklin India Ultra Short Bond fund or a liquid fund from a large asset management company (AMC) such as ICICI Prudential Asset Management Co. or HDFC Asset Management Co. Ltd.

I am currently in the US and hope to stay here for a long time. Can I invest in mutual funds in India? If yes, what are the best ones? My goals are long term.

—Jayesh Chandanshive

A non-resident Indian staying in the US can invest in the schemes of some of the mutual funds in India, but the options are significantly limited compared to what are available for a resident Indian or non-resident Indian living outside the US or Canada. The reason for this limitation is that there are regulatory constraints that the US securities regulator Securities and Exchange Commission (SEC) has put in place, which are difficult—if not impossible—for many fund houses to follow and adhere to. The fund houses that take investments from US-based NRIs include: Sundaram Asset Management Co., DHFL Pramerica Asset Managers Pvt. Ltd., Parag Parikh Financial Advisory Services Pvt. Ltd (PPFAS), L&T Investment Management Ltd and a few others. Some of these fund houses have stipulations such as, requiring the investors to be physically present in India while making the investments or having to sign separate affidavits attesting that they were not solicited for investments. Unfortunately, these restrictions change from fund house to fund houses and from time to time. The best course of action for you would be to select a list of funds for you to invest in from the Mint50 list of funds and follow-up with the individual fund houses to see if it is feasible for you to invest in them conveniently. If not, you can select a different fund from the same category and continue the process until you finalize your portfolio.

I’m not a regular investor but I have invested about Rs1 lakh till now in ICICI Prudential Value Discovery Fund, Series 14; Aditya Birla Sun Life Equity fund, Axis Long Term Equity fund, SBI Magnum Multicap fund. I have also invested about Rs20,000 in Franklin India High Growth Companies fund.

Please guide me on starting a systematic investment plan (SIP) of about Rs30,000 to Rs40,000 a month. I have a 20-year horizon and the goals are my daughter’s education and my retirement.

—Pankaj Vyas

You have made one-time investments in a set of pretty good funds (one of which is a closed-ended fund). I would leave those investments to grow by themselves and focus on the systematic portfolios that you are planning to put in place for your family’s long-term financial well-being. The first thing to do about your SIPs is to make sure you have two separate portfolios—one for your daughter’s education and the other for your retirement. Separating the investments in this manner would give you clarity of purpose and a distinct goal-orientation for your investments. So, if you are investing Rs40,000 per month, you could invest Rs25,000 per month for your daughter and Rs15,000 for your retirement. Once the education goal is taken care of, you could move that allocation over for your retirement (which, hopefully, is further down the road).

As for schemes in the portfolio, they both could use a large-cap fund such as UTI-Nifty Index fund or Franklin India Bluechip fund, and a pair of diversified funds such as Mirae Asset India Opportunities fund and Kotak Select Focus fund. For your retirement portfolio, you could add a mid-cap fund such as Invesco India Mid cap fund and for your daughter’s portfolio, a balanced fund such as HDFC Balanced fund.

Srikanth Meenakshi is co-founder and chief operating officer,

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