I am 27 years old and investing in mutual funds through a monthly SIP of Rs 6,000 from January, 2008. In the next 20 years I want to generate Rs1 crore so that I can enjoy my retirement period. Please advice whether my fund selection is good and also are my investments on track to achieve the target.
It’s good to see that with the limited knowledge you have on mutual funds, you have managed to build up a sound portfolio with few well-rated funds. We also appreciate that you have opted for the safer and most systematic way of investment - SIP and have spread your investments uniformly across the four funds. Having said that, we would like to bring out a few important points that you need to take note of, to be on track for attaining your ultimate objective of generating a corpus of Rs 1 crore.
| Existing | |
| Fund | %Allocation |
| HDFC Equity-D | 18.88 |
| Reliance Diversified Power Sector Retail-G | 11.05 |
| UTI Infrastructure-D | 9.05 |
| Magnum Taxgain-G | 8.74 |
| Magnum Contra-G | 5.37 |
| Reliance Growth-D | 5.35 |
| Stocks | %Allocation |
| Infosys Technologies | 25.14 |
| Axis Bank | 6.35 |
| Larsen & Toubro | 5.23 |
| Punj Lloyd | 4.84 |
The major cause of concern in your portfolio is the high exposure in technology sector. This is certainly because of the 28 per cent holding you have in Infosys stock. A portfolio should not have high exposure in a particular sector as this makes it biased towards the performance of a specific sector, hence making it risky.
Secondly, since all other investments are through Systematic Investment Plan (SIP), then why not in the tax planning scheme? Since you make a tentative plan before investing in tax-planning schemes, it is advisable that you opt for quarterly SIP which will make your investments more disciplined.
Thirdly, debt component is amiss in your portfolio. So we would advice you to add at least 10 to 15 per cent of debt component in your portfolio. This will be helpful in balancing the downside risk in uncertain market conditions.
| Top 10 Equity Holdings | |
| Stocks | % Allocation |
| Infosys Technologies | 28.05 |
| Larsen & Toubro | 7.85 |
| Axis Bank | 7.65 |
| Punj Lloyd | 6.68 |
| ICICI Bank | 2.54 |
| Oil & Natural Gas Corp. | 2.36 |
| Reliance Industries | 2.24 |
| Crompton Greaves | 1.87 |
| SBI | 1.49 |
| B H E L | 1.21 |
| Top 5 Sector Allocation | |
| Sector | Net Asset(%) Also Read |
| Technology | 31.02 |
| Financial Services | 13.99 |
| Diversified | 9.62 |
| Construction | 9.04 |
| Energy | 8.98 |
| Portfolio Style Break Up | |
| Rank | % Allocation |
Now since we have highlighted the few limitations in your portfolio, let’s look at the path to achieve the objective of generating the retirement corpus. Considering that you continue with the monthly SIPs of Rs 6,000, you can generate a corpus of Rs 92 lakh in the next 20 years, expecting a return of 15 per cent per annum on your investment. Whereas if you increase your investment amount to Rs 7,500 per month, it will generate a corpus of Rs 1.15 crore after 20 years, considering the similar rate of return. This is the magic of compounding and rupee cost averaging that SIP mode of investment can provide.
So go ahead and continue investing systematically. Do keep a check on your funds’ performance and also rebalance your portfolio once in a year as per your changing needs and risk appetite.
Value Research