After evaluating my risk potential, I plan to accumulate Rs 1 crore for my child’s education by investing Rs 20,000 a month for 12 years, expecting to get 18 per cent. I have allocated 60 per cent to large-cap funds, 30 per cent to mid-cap and 10 per cent to sectoral funds. Below are the details:Will I be able to achieve my target? Please help.
-John M Varkey
Over the past 10 years, the equity diversified category has given an average return of 17 per cent a year. Since it's difficult to predict the return on equity funds over the next 12 years, it would be wise to assume a conservative return of around 10-12 per cent. In case you optimistically expect a 18 per cent (while investing Rs 20,000) and if the market doesn't work in your favour, you likely to fall short of the target money. To be able to accumulate Rs 1 crore in 12 years, you must up your monthly investment to around Rs 32,000 at 12 per cent yearly.
Although your funds' selection is high on quality, the number of funds is way too many. Also, by 40 percent exposure to mid-cap and sectoral funds, your portfolio is too volatile. Remember that aggressive funds boost the returns in rising markets but tend to fall harder in the downturn. Hence, reduce your exposure to mid-cap and sectoral funds to 30 per cent and increase your large-cap holdings to 70 per cent of your portfolio.
| Fund Type | Funds | Allocation (Rs) |
| Large-cap | HDFC Top 200 | 3000 |
| DSPBR Top 200 | 3000 | |
| BSL Frontline Eq | 3000 | |
| Reliance Reg Savings Eq | 2000 | |
| Magnum Contra | 1000 | |
| Mid-cap | Sundaram BNP Paribas Sel Midcap | 3000 |
| Kotak Opportunities | 1000 | |
| BSL Mid Cap | 1000 | |
| Reliance Growth | 1000 | |
| Sector | ICICI Pru Infra | 1000 |
| Reliance Div Power Sector Ret | 1000 |
Below are our suggested funds that you may choose to invest. Take your pick but choose three large-cap, two mid-cap and one sectoral fund.
I invested in Kotak Indo World Infrastructure Fund in January 2008. I observe that the value of my investment has eroded by more than 20 per cent. Should I redeem the amount now or is there any chance for the fund to pick up in the near future.
-Thirunarayanan
Kotak Indo World Infrastructure was launched in December 2007 as a close-end fund. The fund has an objective to invest up to 90 per cent of its assets in equities of domestic as well as global infrastructure companies. When you had invested in this fund, equity markets were at the peak and so was the infrastructure theme, which attracted many like you to invest in a fund such as this. Following its launch, the fund faced the downturn and the underlying infrastructure theme ran out of favour, which is why the fund failed to put up good performance numbers.
Ideally, thematic funds do not justify being a core position in any equity portfolio, as these are more volatile than pure diversified equity funds because of their narrow investment objective. These funds do well only when their underlying theme is the flavour of the season. You must therefore ensure that you limit such holdings to around 15-20 per cent of your portfolio.
More, by investing in a close-end fund you had incurred high initial expense, which was being charged to the fund. In future, avoid close-end funds as they allow investment only during the NFO period, when the fund has no track record. Our advice is, invest regularly via an SIP (systematic investment plan) in large-cap diversified funds which have a good track record.
If you wish to take on an exposure to infrastructure theme, consider better performing funds with a longer track record, such as ICICI Prudential Infrastructure, Tata Infrastructure or UTI Infrastructure.
|
Returns (%) | |||
| 2009 | 2008 | 2007 | |
| ICICI Pru Infra | 68.30 | -51.63 | 92.91 |
| Tata Infra | 75.74 | -57.58 | 84.31 |
| UTI Infra | 65.92 | -56.32 | 72.01 |
| Kotak Indo World Infra | 72.11 | - | - |
| Category Avg (Eq: Infra) | 79.24 | -58.20 | 80.99 |
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