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Keep your assets for different goals in different portfolios

LiveMint logoLiveMint 27-09-2017 Srikanth Meenakshi

I have systematic investment plans (SIPs) in Birla Sunlife Equity fund (Rs5,000; started in 2016) and Franklin India Prima Plus (Rs10,000; started in 2017). My goals are child’s higher education (10 years from now) and my retirement—which is at least 23 years away. I have some lump sum investments as well. I want to increase the SIP amount by Rs5,000 a month. Should I increase in the same schemes, or choose another one?

—Rashni Paul

You are presently investing systematically in two funds for a total of Rs15,000 a month. Both these funds are large-cap-oriented diversified funds, meaning they invest predominantly in the largest companies in the market, while taking some exposure (around 30-40%) to medium-sized companies. You are investing for two goals—education for your child in 10 years and your own retirement a good while after that. I would recommend that you invest for these goals separately and keep the fund allocations distinct. This would help manage these investments in a purpose-driven way. If you set aside your current investment as being for your child’s education, in another 10 years the corpus would grow to a nice Rs35 lakh (assuming a 12% annual return). This should hopefully suffice for the goal. Now, you can allocate the extra Rs5,000, which you are bringing in, for your own retirement. If you plan to add more money to your SIPs in future, you can simply add them to your retirement kitty.

So, with this in mind, we should treat these investments as belonging to different portfolios with their own asset allocations. The retirement portfolio, being truly long-term in nature, should be an aggressive portfolio. You can invest in a couple of funds for this portfolio (Rs2,500 each). A fund such as Mirae Asset India Opportunities Fund (a multi-cap fund) and another such as HDFC Mid-cap Opportunities Fund (a mid- and small-cap fund) would fit the bill nicely for this portfolio.

I want to invest in an index fund, but I recently read that exchange traded funds (ETFs) are better. How should one compare these two types of funds?

—Mrinalini Ahuja

Both ETFs and index funds track the performance of an index—which could be Sensex, Nifty or any other index. That means, their portfolios are constructed exactly the same way as the index.

Index funds are open-ended mutual funds that invest money in the same weightage and companies that comprise the index. In this case, a fund manager has to constantly rejig the stocks to ensure that they remain in the same weight as the index.

ETFs, on the other hand, are units created and listed on stock exchanges. They will, therefore, automatically move with the price of the index they have chosen. ETF prices move during the market hours based on the movement of underlying stocks. But an index fund’s price is adjusted only end of day. ETFs are managed more efficiently and have a smaller tracking error since they simply reflect the continuous movement of the index through the day. But you can buy ETF units only from a stock exchange. ETFs have a lower expense than index funds. Having said that, there may be index funds tracking some good indices which may not be available as ETFs. There are some smart beta index funds that are not presently available as ETFs (one example is Sundaram Smart NIFTY 100 Equal Weight Fund). In summary, it is about the returns delivered and the tracking error. Lower the tracking error, the better it is. If you are willing to open a demat account, then for the regular Nifty or Sensex indices, ETF is a good way. For other indices, you can explore index funds that have the least tracking error and manage to keep pace with the index returns.

I earn a regular salary, but do not like to be tied down to regular investments. I prefer to save a certain amount and then invest. Are there severe disadvantages to investing in mutual funds in lump sum?


As long as you have a method to invest in the market regularly and in a disciplined manner, you will be fine. Systematic investing makes the process simple—the investor does not need to think as to when to invest in the market and how much. One can simply set a monthly date and an amount and forget about the details. When a person chooses to do it themselves periodically, the temptation is to watch the market and try to see if the market is on the up or down and let such factors influence when you make your investment. If you can resist such temptations and deploy your money as systematically as one would using an SIP, you will do fine. For example, you could tell yourself that whenever your savings reach a particular amount, say Rs10,000, you’ll immediately, without paying attention to where the market is, invest it in a fund; you can do it your way. Of course, there would also be the hassle of actually making the investment (if you do it using an online platform, it would be less of a bother, but still, it would be an effort). With an SIP, there are no decisions to be made, and no effort to expend. That is the reason why they are so popular with so many investors.

Srikanth Meenakshi is co-founder and COO,

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