I am 47 and have been investing in mutual funds through systematic investment plans (SIPs) for the past four years. I want to continue SIPs in the selected funds for a year and then wait for five years to make systematic withdrawals. Please comment on the portfolio and suggest modifications for a minimum of 13-15 per cent year-on-year appreciation.
—Arvind S
Investing through SIPs in mutual funds is the right way to equity exposure. You have made the start but there are issues in your portfolio holdings. You have some good funds but too many with overlapping investment themes. For instance, you have three funds in your portfolio from HDFC. More, your portfolio seems unplanned,lacking the character to offer stable growth.
You need diversification in style and not numbers. Build a portfolio that is based on a core and satellite approach. This will provide the necessary stability and growth for long-term wealth creation. Ideally, you should look at investing 70-80 per cent in core funds and the remaining in satellite funds. In HDFC Top 200, a large- and mid-cap fund, you have a great fund that has weathered several market cycles and remained a top performer. However, it constitutes only 15 per cent of your portfolio holdings. You should reduce your 30 per cent holding to HDFC MIP Long-Term, exit Kotak Opportunities and HDFC Core and Satellite Fund, and increase your core fund allocation to 70 per cent, with large-cap funds such as DSPBR Top 100 Equity or Franklin India Bluechip. You can also add BSL Frontline Equity or Fidelity Growth to supplement the core holdings. Both these are large- and mid-cap funds that will compliment the large-cap funds.
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You should have two-three core funds in all, to get stability in your portfolio, with another couple of funds to form the satellite component, comprising multi-cap funds and thematic or sector funds. You can initiate these changes right away to see the benefits over the next one year.
I wish to invest Rs 30,000 to get full Section 80C benefits. Which fund should I invest in to get the tax benefit? Is NSC a better option?
— Deepak Joshi
You will get the benefit of a tax deduction under Section 80C of the Income Tax Act in both investments, equity-linked savings schemes (ELSS) and National Savings Certificate (NSC). If you are looking for safety and a guaranteed return, NSC scores over ELSS. It offers a fixed return of eight per cent per annum. However, in terms of returns over the long term, ELSS definitely scores over NSC.
ELSS is also a superior investment product in terms of holding period and tax benefit. The mandatory investment period for ELSS is just three years, as against six years for NSC. When you sell the units of your ELSS after three years, the long-term capital gains tax is zero. But the returns in NSC are added to your tax slab and taxed accordingly. You can consider investing in Canara Robecoo Equity Tax Saver or HDFC Tax Saver. Both these funds have a performance history and proven track record.
I would like to put aside Rs 5,000 per month for two years. After which, I will liquidate all the investments to make furniture for my house. I intend to generate a 15-20 per cent return on my investment. Please advise on funds which will help me achieve my target.
— Chirayu Sutaria
Your idea of investing Rs 5,000 every month to create a corpus to fund the furnishing of your home is good. As your investment period is short, your investments will be safer in a balanced fund. You should consider investing in funds such as HDFC Prudence or Reliance Regular Savings Balanced Fund which have a proven record and performance history. Remember, mutual fund returns are not guaranteed; if the selected fund earns 15 per cent over the next two years, your SIP investments will be worth Rs 1.4 lakh.
