I am 31-years old and want to plan my retirement. I am planning to invest Rs 3,000 monthly via SIP in three funds, Franklin India Bluechip, SBI Emerging Business and Canara Robeco Equity Diversified fund for average returns around 12-15 per cent and increase my SIP by Rs 2,000 every year. I also plan to invest Rs 3,000 per month in PPF. Please suggest if the portfolio selection for SIPs is right?
- Karthik Hasee
You have chosen well-rated and good funds for your portfolio. Investing in them will allocate nearly 60 per cent of your money to large-cap stocks, 24 per cent to mid-cap and 15 per cent to small cap.
Including your investment in PPF, 75 per cent of your portfolio is equity and 25 per cent in fixed income. Now if we simplify this for you, investing your money in just one hybrid or balanced fund will do exactly the same. Equity-oriented hybrid funds have over 70 per cent equity, and 30 per cent fixed income investments. Depending on market scenario, they automatically rebalance their exposure between equity and debt. The fixed-income exposure means they are a lot more stable during volatile times. When stock markets are doing well, these funds lock-in gains from equity in the fixed-income investment and protect from losses in bad market phases.
These funds are not completely immune to volatility, but they will certainly lose less than equity funds. Since your investment tenure is at least 30-years, we choose one of the oldest fund to illustrate SIP returns. A monthly SIP of Rs 12,000 in HDFC Prudence fund, since launch (1994), would have given annualised returns at 21.27 per cent.
This article was originally published on April 24, 2013.
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