Financial Guidance

I have been reading the various columns of Dalal Street Investment Journal for quite some time now. Your analysis of funds is one area that is of particular interest to me, as I invest in mutual funds in a big way.

I am an advertising professional, and earn around Rs 70000 a month. I would like to know which funds would be suitable to me in the present market scenario with the intent of building a solid corpus for my son’s education.

As of now, I have holdings in the following funds:

1. Birla Sun Life Savings Fund
2. Fidelity Ultra Short Term Debt Fund
3. HSBC Income Fund
4. HDFC Multiple Yield Fund

I would also like to add a couple of SIPs to meet my goal going forward, and have decided to keep Rs 10000 aside from my monthly income for the same. Can you please make some recommendations for me?

-    Sanjay

Answer -

You seem to be in a very conservative investing mode. Either that, or you have not been advised on your investments. I would seek to move away from this ultra-conservative stand for you and add some risk in the form of a few equity funds, and also re-cast your debt fund portfolio.

The first two funds that you hold are liquid funds and will fetch you safe returns, but these were more appropriate for an earlier period. For the last 12 to 18 months, I have been advocating a good measure of short term plans and FMPs. That stance has recently been updated to include some medium term bond funds. I am not yet advocating long term bond funds (also known as income funds). In any case, the HSBC Income Fund would definitely not be at the top of my list of consistent performers.

As far as asset allocation is concerned, your portfolio has a mix of debt and equity. I will suggest that you move to a moderate approach, and have 50 per cent of your investments in equity and the balance in debt funds. In the long run, this should give you reasonable returns of about 12 per cent compounded per annum with moderately low volatility. Since you will be opting for a monthly investment plan, its inherent ability to average the market will further reduce the volatility and risk in your investment portfolio.

Once you are comfortable with this allocation, you can also consider the prospect of increasing the equity allocation in your portfolio. Of course, that is only once you have tasted volatility and do not give up. When investing in equity, one needs to wait it out since equity tends to be unpredictable over the short term. Even with a moderate portfolio, it is quite possible that your portfolio could go down by as much as 10 per cent, though having observed behavioural patterns over time, a recovery can happen if one is able to hang on. Since you have a long time horizon, you can be confident when investing in good quality equity funds. Remember not to put a halt to your investment plan when the markets are down, since that is actually the best time to accumulate your mutual fund units.

For your equity fund portfolio, I suggest two funds: the HDFC Top 200 Fund and the Franklin Templeton Bluechip Fund. You could also consider the Fidelity Equity Fund or the DSP Blackrock Top 100 Fund.

For the debt portion, I will suggest an SIP in the Templeton India Corporate Bond Fund and the Birla Sun Life Dynamic Bond Fund.

For the SIP, you are advised to bring your existing portfolio in line with the one suggested here.