MF Query Board

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ICICI Prudential Value Discovery Fund was one of the best wealth creators till a few quarters ago. However, lately its performance has deteriorated and it has failed to create wealth for its investors. As you have invested in this fund via SIP of Rs 5,000 since April 2015, till now you must have invested Rs 2.95 lakhs and your investment is worth Rs 3.20 lakhs. This means that your investment grew at a Compounded Annual Growth Rate (CAGR) of a mere 1.67 per cent. Even if you had invested in ICICI’s Nifty Index Fund, your investment might have been worth Rs 3.77 lakhs, a CAGR of 5.12 per cent. The following table will help you understand the trailing returns of the fund. 

As we can see from the above table, in terms of trailing returns the fund has not been able to beat its category average returns in the last five years. Apart from 10-year returns, in all the other periods it has underperformed its category. One of the reasons for such underperformance is that the theme of ‘value’ has failed to perform. Moreover, the theme is not going to come back soon and hence it is better to switch from this fund to some other fund with a different theme that suits your risk profile.

One thing to note is that the value theme has been one of the slowest wealth creators in recent years. Therefore, if you are a value investor, then you need patience. And if you have aligned this fund to any of your financial goals and if it is not on track to achieve that, then it would be better to stop the SIP and also switch the accumulated amount to some other category such as largecap, mid-cap, small-cap or multi-cap depending upon your financial goals and risk appetite.

I am a retiree and wish to have a regular income of Rs 60,000 per month. What are the different investment options to consider?

- Arpit Sharma 

Things might get difficult as one retires. This is because earlier one could have invested the money in bank Fixed Deposits (FDs), bonds, Senior Citizens Savings Scheme (SCSS) or even Public Provident Fund (PPF) that earned returns that were actually able to beat inflation. However, looking at the current trend it seems most of these funds are failing to beat inflation. When you retire, you have a very low risk tolerance. Being a retiree, taking risk on your investments might not seem to be a wise decision. In case you take some risk there is a possibility that your investments may increase in value but if the markets turn volatile it will only lead to a lot of anxiety since there will be no other cash inflows to depend on.

Therefore, it is crucial for retirees to carefully deal with their distribution pattern. The best way for you in such a situation is to have proper asset allocation. Also, you should understand that equity is an important part of it. Let’s say you have accumulated Rs 1 crore and on an average, you are able to generate 8 per cent per annum on this accumulated amount. This would help you earn around Rs 67,000 a month. However, you might face a problem after five years because your need for income will increase since there could be a 10 per cent inflation on your household expenses during that period. Hence, the amount of Rs 67,000 would be worth Rs 41,600 and you will not be able to support your expenses. Thus, to overcome such hurdles you also need to grow your capital apart from generating income. Almost all the fixed income alternatives are meant to protect the capital.

Hence, to grow your capital and support higher income needs you need an investment avenue that will help you achieve your target. Therefore, plan out your asset allocation. Keep around 30-40 per cent in equity that is likely to generate 10 per cent on an average and the remaining in debt, which is likely to generate 7 per cent return. This mix will help you to generate wealth that will support your expenses. The ratio will of course change depending on your income requirement.