Avoid Lump Sum Investments

Lump sum investments are not the best route to achieve long-term wealth creation


I am 45 and have recently invested lump sums in Reliance Equity Opportunities, UTI Opportunities, Fidelity India Growth, DSPBR Equity, HDFC Mid Cap Opportunities, Axis Equity and Benchmark Hang Seng funds. These investments are for my 13-year old sonís future education. Will I be able to accumulate Rs 10 lakh in 8 years for his future?
-Harish Kumar Agarwal

You have invested Rs 2.1 lakh in lump sum across seven funds, which is not the best way to invest for long-term wealth creation. To achieve your goal of building a corpus of Rs 10 lakh in eight years for your sonís future education, you need Rs 6,200 every month earning annualised 12 per cent to reach this goal or Rs 5,400 every month earning 15 per cent annualised. You should consider SIP investments over lump sum as being systematic and disciplined works better when investing for the long term.

Though you have some good funds in your portfolio of seven funds; it has overlaps in funds with three large- and mid-cap funds, and two sector funds. This only makes your portfolio diverse in numbers and not in style or category of funds. Two of your fund investments are in NFOs. Remember, there is a huge uncertainty with these investments as they do not have any track record or past performance.

Scheme  Category  Rating  3-year return (%)  5-year return (%)
Axis Equity Large & Mid Cap Not Rated - -
Benchmark Hang Seng International Not Rated - -
DSPBR Equity Multi Cap * * * * 11.09 15.85
Fidelity India Growth Large & Mid Cap * * * * * 11.7 -
HDFC Mid Cap Opportunities Mid & Small Cap * * * * 15.55 -
Reliance Equity Opportunities Multi Cap * * * * 15.02 13.39
UTI Opportunities Large & Mid Cap * * * * 13.99 12.72
Data as on April 29, 2011

You should build a portfolio of core and satellite funds with the core comprising large- and large- and mid-cap funds accounting for up to 80 per cent allocation. The balance 20 per cent can form the satellite component of your portfolio comprising multi cap and small- and mid-cap funds. Consider exiting Axis Equity, Benchmark Hang Seng and add a large-cap fund such as Franklin India Bluechip to strengthen the core of your portfolio. You can retain the multi cap and mid- and small-cap fund that you have, but start investing regularly in these funds than in lump sum. Moreover, track the performance of the funds you invest in at least once a year to follow its progress towards your investment goal of building a corpus of Rs 10 lakh to fund your sonís education.



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