BackModerately aggressive portfolio would work over 6 years
Triggers allow investors to take an investment action when some predetermined event takes place
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I plan to invest ₹ 15,000-20,000 through systematic investment plans (SIPs). I require ₹ 20 lakh after six years. Suggest me some good schemes.
—Kumar
The amount of investment you are planning to make every month is in line with your financial goal. To generate ₹ 20 lakh in six years, assuming a 12% annual return, you will need to invest ₹ 19,300 every month in a diversified portfolio. Since you have indicated that you can invest up to ₹ 20,000 a month, you should be okay on this count. Now, when it comes to the portfolio, the time period of your investment—six years—suggests a moderately aggressive asset allocation.
A possible portfolio for you would be like this: 50% allocation to hybrid funds, 30% to large-cap-oriented funds and the remaining to small- and mid-cap funds. You can choose two funds in the first category, two in the second, and one in the third. You can consider investing ₹ 5,000 each in HDFC Balanced and DSP BlackRock Balanced, ₹ 3,000 each in Franklin India Prima Plus and ICICI Prudential Dynamic and ₹ 4,000 in IDFC Premier Equity Fund.
My agent has recommended the trigger option of Tata Equity P/E Fund? What is it? Should I opt for it?
—Vinisha
Triggers allow investors to take an investment action when some predetermined event takes place. For example, an investor may want to enter into a fund when the Sensex hits a particular value, or book profits when a scheme has appreciated by a certain percentage relative to the cost point. Typically, triggers are external to MFs and are offered by electronic investment platforms as a value-add. However, in some cases, MFs offer triggers to allow investors to specify an action that the fund must take when an event takes place. Tata Equity P/E fund offers two such internal trigger options both of which force the scheme to declare a dividend to the investors when the fund appreciates by a certain percentage within a quarter. The two options are for 5% appreciation and 10% appreciation of the net asset value (NAV) in a single quarter. When the appropriate appreciation happens, the scheme will declare a dividend to all the unit-holders (each option is considered a separate scheme).
The advantage of this method is that it allows investors to book profits when there is a market upswing. However, the downside is “reinvestment risk": once the dividend is received, there would be a question of what to do with it. If you do not reinvest it, you would be losing the power of compounding. If your investment is for a short period of time (3-5 years), then this profit-booking option would be useful; if it is for a longer period, then avoiding such triggers and letting the investment grow within the fund itself would be better.
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