After critically evaluating my risk potential, I have planned for my child's education. I plan to achieve Rs 1 crore by investing Rs 20,000 per month for 12 years while expecting a return of 18 per cent. I have allocated 60 per cent to large-cap funds, 30 per cent to mid-cap funds and the rest 10 per cent to sectoral funds.
Below are the funds which I plan to invest in.
Type of fund Funds
Large-cap Fund HDFC Top 200 - Rs 3,000, DSPBR Top 100 - Rs 3,000, BSL Frontline Equity - Rs 3,000, Reliance Regular Savings Equity - Rs 2,000 Magnum Contra - Rs 1,000
Mid-cap Fund Sundaram BNP P. Select Midcap - Rs 3,000, Kotak Opportunities - Rs 1,000, Birla Sun Life Mid Cap - Rs1,000, Reliance Growth- Rs 1,000
Sector Fund ICICI Prudential Infrastructure- Rs 1,000, Reliance Diversified Power Sector Retail- Rs 1,000
Will I be able to accumulate Rs 1 crore after 12 years? Please advise.
- John M. Varkey
Over the last 10 years, equity diversified category has delivered an average return of about 17 per cent per annum. Since it's difficult to predict what will be the return on equity funds over the next 10-12 years, it would be wise to assume a conservative return of around 10-12 per cent per annum. In case you optimistically assume a return of 18 per cent (while investing Rs 20,000 per month) and the market doesn't work in your favour, you could fall short of your target amount at the time of need. To be able to accumulate Rs 1 crore in 12 years (@ 12 per cent p.a) you must increase your monthly investment to around Rs 32,000.
Going on to your portfolio, we feel that although your fund selection is high on quality, the number of funds is way too many. Also, 40 percent exposure to mid-cap and sectoral funds will make your portfolio too volatile. Remember that aggressive funds boost returns in a rising market but tend to fall harder during a 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.
Bespoke portfolio
Large-cap Fund HDFC Top 200, DSPBR Top 100, BSL Frontline Equity, Reliance Regular Savings Equity, Magnum Contra
Mid-cap Fund Sundaram BNP Paribas Select Midcap Reg, Reliance Growth, BSL Mid Cap Plan A, Kotak Opportunities
Sectoral Funds ICICI Prudential Infrastructure, Reliance Diversified Power Sector Retail
Above are our suggested funds that you may choose from. Take your pick but choose only three large-cap, two mid-cap and one sectoral fund.
This article was originally published on May 31, 2010.
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