Photo: iStock
Photo: iStock

Even diversified portfolios need a sense of balance

In the event of a market downturn or a persistent bear run, you will likely feel the need of a more stable asset class such as debt

I am a 49-years-old non-resident Indian (NRI). I have been investing a total of Rs1.7 lakh through systematic investment plans (SIPs) in: Birla Sun Life Frontline Equity (Rs30,000), SBI Bluechip (Rs40,000), HDFC Mid-cap Opportunities (Rs40,000), ICICI Prudential Value Discovery Fund (Rs40,000), Franklin India Smaller Companies (Rs20,000) since the last 2 years. All SIPs are direct—growth plans. This is for my retirement and I have 10 years more to invest. I want to know: is my portfolio less diversified, as the SIP amount is large? Should I continue the same portfolio or is any change required?

—Sabu Jose

You are right, that is a pretty sizable SIP portfolio you have here. With an investment of Rs1.7 lakh per month, if you continue this investment for another 10 years, you will likely wind up with a corpus of about Rs5 crore (assuming 10-12% annualized returns). Presently, you are investing 40% of your SIP instalments in large-cap oriented funds (SBI and Aditya Birla), 35% in small- and mid-cap funds (Franklin and HDFC), and the remaining in a diversified value fund (ICICI).

This portfolio provides good diversification across market segments and is well-spread out across different asset management companies. However, one thing missing in your portfolio is balance—and that is a sense of proportion between different asset classes.

You are invested 100% in equity funds presently. And that would have worked out very well for you over the past 2 years with the markets performing very well. However, in the event of a market downturn or a persistent bear run, you will likely feel the need of a more stable asset class such as debt in your set of investments. It would be a good idea to reallocate your portfolio in this regard a bit. You can consider moving 10% out of each of your small-cap allocations as well as your diversified fund allocation, totalling 20%, and investing that in a short-term debt fund such as UTI Short-term Income fund. Alternately, if you increase your SIP instalment amount in future, you could put the new money in such a debt fund. Apart from this current adjustment, you should also consider making a stronger move towards debt in another 5-7 years as you would be nearing your retirement date and you would need to start securing your gains.

I want to invest Rs10,000 every month in mutual funds through SIP mode. My horizon is 10 years plus and my goal is to create wealth. Please advise the top funds for long-term investment and good returns.

—Siddhartha Thakur

With a long-term investment horizon and a reasonable monthly instalment amount, you can start investing in a good diversified, balanced portfolio.

An asset allocation of 80% in equity and 20% in debt would yield a good stable basket of investments.

Within equity, a large-cap fund and a couple of diversified funds would provide good coverage of the markets. My recommendation would be to invest Rs4,000 in a long-term winner such as Mirae Asset India Opportunities fund, and Rs2,000 each in Franklin India Prima Plus and ICICI Prudential Dynamic Plan. The remaining Rs2,000 can be invested in a debt fund such as HDFC Regular Savings fund. If you invest in this portfolio for 10 years, your investment amount would be Rs12 lakh. If we can assume a long-term annual return of 12%, your investment would have practically doubled to Rs24 lakh in that period.

I am a NRI living in Oman for last 5 years. Please advise the best investment opportunities in mutual fund or fixed deposit schemes where TDS is not applicable, which give a decent return of 10-12%.

—Laxmanan R.

Taxation rules for NRIs are slightly different from those for resident Indians. And this difference is most pronounced when it comes to how taxes are deducted at source (TDS) in some situations. Residents of India do not incur any TDS when they withdraw (redeem) money from their mutual fund investments.

However, NRI investments are subject to TDS at the time of redemption in some circumstances. If it is an equity-oriented fund, short-term gains (less than 1 year) are subject to a 15% TDS. For non-equity oriented funds (debt funds and others), short-term gains (less than 3 years) are subject to 30% TDS and long-term gains are subject to 20% (after indexation) TDS.

So, if you would like to avoid TDS, your best bet would be to invest in domestic equity funds and hold them for a period of more than 1 year. Since these funds are suited for long-term investing, the holding period would not be a problem, one would hope. Also, if you’d like to have exposure to debt in your portfolio, you can consider equity-oriented hybrid funds (balanced funds) which will give you the best of both worlds—a balanced investment option while not incurring any TDS on redemption.

Srikanth Meenakshi is co-founder and chief operating officer,

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