First, define. Then, select

I want to create a retirement corpus of Rs 5 crore in 20 years. I have invested Rs 5,000 in five funds and plan to increase the amount by 10 per cent annually. I am also investing Rs 70,000 in PPF. Will I be able to achieve my goal?

- Aldous

You have made a good start by defining your financial goal.your mutual fund (MF) portfolio is well diversified at the moment, with two large-cap and large- and mid-cap funds besides a mid- and small-cap fund. Continue with regular investments in MF systematic investment plans (SIPs) to achieve your long-term retirement goal.

Investing Rs 25,000 over 20 years in a portfolio earning 12 per cent will accumulate Rs 2.49 crore. At 18 per cent, you can earn Rs 5.85 crore. As you plan to increase your monthly investment of Rs 25,000 by 10 per cent each passing year, you should be able to reach your goal of accumulating Rs 5 crore in 20 years.

Track the performance of your investments at least once a year to evaluate and change if need be.
 

Funds	Returns* (%)
	3-year	5-year
DSPBR Top 100	7.62	17.78
Frankling India Bluechip	7.92	15.67
HDFC Top 200	11.43	18.83
BSL FL Equity A	7.69	18.37
Sundaram Select Midcap	5.91	17.4
*Returns as on February 7, 2011

I am 21, with Rs 15,000 monthly salary. What MF scheme is right for me?

- Ramesh Kandpal

Your annual income works to Rs 1.8 lakh and brings you in the tax net. It will be a good start if you can invest in tax planning funds to help you save on taxes, as well as gain from the equity exposure you can get through these funds. Opt for a SIP option in funds such as Canara Robeco Equity Tax Saver, Fidelity Tax Advantage or HDFC Taxsaver. All the three are five-star rated funds.

I will turn 60 in two months time. I plan to invest in the SCSS and MFs as I do not need income until 2012. What MFs would you suggest?

– Sunil Joshi

You could consider investing in balanced funds such as HDFC Balanced or Reliance Regular Savings Balanced funds. The equity-oriented hybrid funds invest over 60 per cent in equity, with the rest in debt, which helps these funds earn returns while protecting the downside with the debt exposure. Based on your income requirement in this investment, you can initiate a systematic withdrawal plan to redeem units to meet your income needs.

I had a Rs 10,000 SIP in Reliance Vision Mutual Fund from October 2005 till October 2008. The funds rating has dropped from 4 or 5-star to 2 or 3-star currently. I have made a gain of Rs 1 lakh on my investment. Should I exit this fund or hold on? I will be re-investing the money I redeem.

– Avnish

A steadily declining fund loses its star ratings regularly. This offers investors an exit option.

You can consider redeploying the funds in Birla Sun Life Frontline Equity Plan A, Fidelity India Growth or HDFC Top 200. They fall within the large and mid-cap fund space, similar to Reliance Vision. By exiting a poorly faring fund to the best performers in the category, you stand a chance of gaining in the future. Track the performance of your funds periodically. If the selected fund’s performance starts to slip, its time for you to exit and invest elsewhere.

Value Research