Photo: iStock
Photo: iStock

Add balanced and short-term debt funds to your portfolio to ensure it remains stable in hard times

A portfolio with 100% equity allocation, with 50% going into mid caps and the rest in large caps, is very aggressive and calls for high risk appetite

My daughter has been working in Canada for the last 4 months. I have been investing for her marriage in mutual funds. Can I continue investing on her behalf in these funds? Or can she continue with these investments instead?

—Suvarna Lankalapalli

When you say that you were investing “on her behalf" for her marriage, I understand that you were investing in her name as a minor with you as the guardian. Regulations allow for money to be drawn for investment from a parent’s or guardian’s account for a minor’s investment folio, and investors generally use this for the financial goals of education or wedding.

At this point, however, there are two complications. First, your daughter is no longer a minor and hence, she needs to invest in her folio from her own bank account. The folio that you had been investing in would need to be transitioned into a regular (non-minor) folio that would allow her to do this (invest from her own bank account). This would be the right and regular course of action in such situations.

But in your case, there is a second complication that your daughter is now in Canada. Regulations in Canada have made it difficult for a Canadian resident to invest in certain mutual funds in India. Whether or not your daughter (as a Canadian NRI) would be able to continue the investment (after transferring the folio to her name) would depend on the specific asset management company where the folio(s) is held. So, the proper course of action for you would be to call the AMC where you have investments and explain to them the situation. It is very likely that they would be able to identify a specific course of action that would enable your daughter to continue her investments. While you are doing that, you may want to get her KYC (know-your-customer) done as a major and, if she does not have one already, get a non-resident bank account (NRE/NRO) opened for her as well.

I invest in Rs2,000 each in monthly systematic investment plans (SIPs) of SBI Blue Chip, Aditya Birla Sunlife Top 100, L&T India Value, Kotak Select Focus, Mirae Asset Emerging Bluechip and HDFC Midcap Opportunities (total Rs12,000 per month). I am 32 years old and want to continue investing for at least 10 years. Please suggest any additions/deletions to my portfolio?

—Veera Gangadhar

You are currently investing in a 100% equity portfolio with 50% going to the mid-cap segment of the market and the remaining going mostly to large-caps. Given both the asset allocation and the allocation across categories, this is a very aggressive portfolio. Your investment horizon is long term, and hopefully significantly more than 10 years. If that is so and if you have a high level of risk tolerance (the ability to be unfazed by significant market movements—imagine a repeat of 2008 where your portfolio value fell close to 50% and recovered after that), you can continue investing in this portfolio and add to it as your income and investment capacity increases. However, if you wish to protect the notional downside so that the portfolio remains somewhat stable in hard times, I would suggest you replace a large-cap fund with a balanced fund, and a mid-cap fund with a short-term debt fund. That would bring your equity allocation to around 80% and would provide some cushion on the downside.

With the Securities and Exchange Board of India (Sebi) asking fund houses to adhere to categorization rules for schemes, will the inherent strategy of schemes also change along with their names?

—Vinod Taneja

Sebi has asked fund houses to rationalize schemes across a set of pre-defined categories and to keep only one fund for each category (with a few exceptions such as for theme and index funds). Mutual fund companies may complete this exercise by the end of May. This has resulted in significant changes in some schemes—from the name to category to mergers (to ensure there is only one fund per category).

Yes, there are several funds for which the changes have been more than just the name. Funds have moved from one category to another (which means a significant change to their investment strategy) in several fund houses. What this means for an investor is that a portfolio review at the end of this exercise is a must to ensure that the risk profile and suitability of funds in the portfolio remains unaffected.

I want to save in a short-term debt fund for a holiday in December, but it may get postponed. If the event gets postponed, how should I re-invest the money? Should I instead choose an ultra short-term fund?

—Aluka Kohli

Short-term debt funds are ideal for a 1-2-year investment horizon. Since your term is shorter, you should buy an ultra-short-term fund. Should your plan get postponed, it should not matter much. The difference in returns between these two categories of funds has only been in the range of 0.25-0.50% annually.

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

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