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Stick with equity if your investments compare well with diversified funds

LiveMint logoLiveMint 21-06-2017 Srikanth Meenakshi

I have been investing in stocks and equity-linked saving schemes (ELSS) since 2015. I do about Rs40,000 in ELSS and Rs50,000 to Rs60,000 in stocks via systematic investment plan (SIP). Should I invest with SIPs in mutual funds or invest in stocks myself? My time frame is 5 years.

—Abhay Jha

It is a little difficult to answer this question without knowing how good you are with picking stocks on your own and managing a portfolio of equities. However, since you have been investing for the past 2 years or so, you would be able to gauge this yourself—please check to see how your stock portfolio has done compared to the average return of diversified mutual funds in this period. For the record, as of this writing, diversified funds returned close to 25% in the last year. If you have managed to hold your own against the performances of mutual funds and you feel confident about your ability to continue doing so, there is nothing wrong with managing your own equity portfolio. However, if you feel you need help or if your performance does not hold up, mutual funds are a safer option.

I am 34 years old. I earn around Rs20 lakh a year. What component of my salary should I save for my kids and my retirement? I have a home loan EMI of Rs30,000 a month. I recently started investing in mutual funds and have invested Rs20,000 in Birla Sunlife Equity Fund; Rs10,000 in Franklin India High Growth Companies Fund; Rs20,000 in SBI Magnum Multi-cap Fund; Rs20,000 in Axis Long-term Equity Fund; and in ICICI Prudential Value Discovery Fund I have an SIP of Rs2,000 per month plus Rs20,000. I want to invest on lump sum basis whenever I can and I have only selected multi-cap equity funds for now, as I have a 20-year investment horizon. Should I diversify my portfolio? Also, will real estate give better returns in the National Capital Region (NCR), compared to mutual funds?

—Name withheld on request

When considering such long-term portfolios, there are always three questions that an investor needs to ask and find answers to: how much to invest, how to invest, and where to invest. At this time, although you have some mutual fund investments, there is only one scheme in which you are investing regularly. To me, that is the only investment that counts for investing for goals such as kids’ education and retirement. In your case, you should be investing as much money you are able to save every month. Given your salary level, this amount is likely to be more than the Rs2,000 you are presently investing, notwithstanding your home loan EMI commitment. You can invest your savings in these portfolios by allocating 40% for each of your kids’ education, and the remaining 20% for retirement. This is so because the education goal is likely to come up before your retirement. So, if you are able to save Rs15,000 every month, you can invest Rs6,000 each for your kids and Rs3,000 for your retirement. That takes care of how much to invest and how to invest.

You are presently exposed to a set of diversified funds. A better approach might be to go with a combination of different categories of funds to get higher returns by having parts of your investments focus on high-growth segments of the market. Towards this, each of your portfolios could contain one large-cap fund, one diversified fund, and two mid-cap funds. If you want to play a bit safe, you can replace the diversified fund with a balanced fund. You can select good funds from the curated list of funds in Mint50. About investing in properties in the NCR, in my opinion, the more likely scenario over the next 20 years is for the equity market to outperform other asset classes, including real estate.

I am 38 and want to have a corpus of Rs1.5 crore in the next 18-20 years. I have been investing in mutual funds for 1.5 years. As of now, I invest Rs5,000 every month in Franklin Templeton India Bluechip Fund (Growth option), SBI Bluechip Fund (Growth), ICICI Pru Value Discovery Fund (Growth), and Axis Long Term Equity Fund (Growth). Are these funds and investment levels adequate or should I add other funds to my portfolio?

—Arjun Kumar

Given your goals and time-frame, you are investing an adequate amount. If you invest Rs20,000 for the next 20 years (240 months), and if your portfolio returns a compounded rate of 10% (which is quite possible), then you will reach Rs1.53 crore. There might be ups and downs but it is more likely than not that you will reach your goal. Regarding your investments, you are investing in two large-cap funds, a multi-cap fund and a tax-saving fund. You may want to replace the SBI Bluechip Fund with SBI Equity, and since you don’t have a mid-cap fund in your portfolio, you may want to replace the Axis fund with HDFC Mid-cap Opportunities Fund.

Srikanth Meenakshi is co-founder and COO,

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