Photo: iStock
Photo: iStock

High concentration of risk in a portfolio, even if for the long-term, is not a good idea

It is always a good to assign purpose to different parts of your portfolio and keep them goal oriented

I am 35 and have a 1-year-old child. My monthly salary is Rs95,000. I have invested Rs1,000 each in BNP Paribas Mid-cap Fund Growth; Birla Sun Life MNC Fund - Growth-Regular Plan; HDFC Mid-cap Opportunities Fund - Regular Plan - Growth; HDFC Long-term Advantage Fund - Regular Plan - Growth; ICICI Prudential Value Discovery Fund - Growth; and SBI Emerging Businesses Fund - Regular Plan - Growth. I am planning to invest in HDFC Prudence Fund (Rs 3,000), Reliance Small-cap (Rs2,000) and HDFC Retirement saving fund (Rs4,000) for my 80C requirements and also for retirement planing. Please guide if this okay.

—Manjunatha C.

You are presently investing Rs6,000 in a variety of mutual funds. Most of the funds that you are investing are high-risk funds that invest in the mid- and small-cap segments of the equity market. The ICICI Prudential Discovery fund, which is a diversified fund, and the HDFC Long-term Advantage fund, a tax-saving fund, are the two exceptions in your portfolio. Such a concentration of risk in a portfolio, even if it is oriented towards the long-term, is not a good idea. So, to that extent, your plan to stop the SIP in two of such mid-cap funds is a good idea. You plan to replace them with an equity-oriented hybrid fund (HDFC Prudence) and a tax saving fund, apart from another small-cap fund. It is also good that you are assigning purpose to different parts of your portfolio and keeping them goal oriented.

A word about each of the replacement funds would be in order. The HDFC Prudence fund is a fund unlike any that you have presently invested—it invests in a broad set of stocks in the market (in an aggressive style) as well as in instruments in the debt market. Although you can consider adding this to your portfolio, adding a pure debt fund—HDFC Short term Opportunities fund would be a more balanced choice when you look at your overall portfolio allocations. Between the other two, you can go with the tax saving fund, assuming that you need Rs60,000 invested every year in an ELSS fund to get full tax deduction benefits (you are presently investing Rs1,000 in one tax saving fund, also from HDFC Mutual fund). If not, you can go with a large-cap fund such as HDFC Top 200 instead. Since you already have sufficient mid- and small-cap exposure, you would not need additional small-cap funds.

My husband runs a small business. He gets rent of Rs12,000 and makes Rs30,000 a month from his business. I am 33. I have a job and my take-home salary is Rs30,000 a month. Last year, I started SIPs in SBI Blue chip (Rs3,000); Reliance tax saver (Rs2,000); Reliance small- and mid-cap (Rs3,000); DSP BR small and mid cap (Rs1,000).

Is this okay to meet my daughter’s higher educational expenses of at least Rs50 lakh? She is 4 years old. What pension plan should I buy so that at 58, we can start getting Rs30,000 per month. Is it worth investing in jewellery for my daughter or should I invest in real estate?

—A. Krithika

You are presently saving and investing Rs9,000 a month in a diversified portfolio. About 60% of it is going to large-cap oriented diversified funds, and the rest is going to risky small- and mid-cap funds. If you continue investing in this aggressive portfolio for the next 13 years, you would likely have about Rs35 lakh in your portfolio (assuming a 12% annual return over the long term). To get to a Rs50 lakh corpus, you would need to invest about Rs14,000 a month. Over the next few years, you should consider slowly increasing your SIP amount to get to this figure (and a bit more, to compensate for under investing initially).

If you need gold for your daughter’s wedding, it would be prudent to invest in the sovereign gold bonds. Using this option, you can buy into gold in the form of bonds at today’s prices (with a small discount) and redeem them in future at the price of gold then (which you can subsequently use to buy real gold). The investment even earns you a small annual interest in the interim.

For your retirement, if you need Rs30,000 (in today’s cost) after 25 years, you would need Rs1.6 lakh per month when you account for inflation in the intervening years. To generate that amount as an annuity, you would need to build a corpus of Rs2.2 crore before retirement arrives. Creating and nourishing a separate retirement portfolio of funds for this purpose would be the right way to go about building this corpus. You would need to invest Rs12,000 a month to reach the amount you are targeting.

Srikanth Meenakshi is co-founder and chief operating officer, FundsIndia.com.

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