I am a 35-year-old IT professional. I am building a portfolio for long-term needs like education for my children (15-year horizon) and retirement (25-year horizon). My portfolio plan for long-term savings is as follows: RBI 6.5 per cent savings bond: 40 per cent; Franklin Bluechip: 20 per cent; HDFC Equity: 20 per cent and HSBC Equity: 20 per cent. Is this a well-diversified portfolio that I can remain invested in for the next 15 years?
Raja
Broadly, your thinking is along the right directions. However, there are some issues you need to consider. You are planning to invest 40 per cent of your allocation in risk-free fixed return instruments like 6.5 per cent (non-taxable) RBI Savings Bond. However, in this year's Budget, the 6.5 per cent RBI savings bond has been scrapped, as a result of which you are left with the 8 per cent (taxable) RBI savings bond. Nonetheless, there are other long-term risk-free government guaranteed investment options, which are equally competitive, if not more. Post office MIS, PPF, NSC are some of the other investment avenues which you can consider.
However, the problem with such instruments is that the maturity period of these instruments is too long and the returns are reasonably lower as compared to diversified equity funds. Liquidity is also a concern in these instruments. Since you are willing to hold your investments for the long term it would be wiser for you to reduce your proposed debt allocation and increase investment in diversified equity funds. This would help you appreciate your capital over a period of time along with ample liquidity, which the funds offer.
Since your objective is to generate long-term returns, diversified equity funds are the most appropriate choice for you as equities have always proved to be the return-oriented asset class in the long run. As far as your equity portfolio is concerned, Franklin India Bluechip and HDFC Equity will be the apt choice for you. Both the funds have a healthy flavour for large-caps and are maintaining a quality portfolio. Also, the three-year and five-year returns from these funds have comfortably beaten both the category average performance as well as the benchmark. However, HSBC Equity is a fairly new fund and has yet to go through the testing times in its tenure. So, it is fairly difficult to comment on this fund. Still, the fund has done well in its short stint.
This article was originally published on September 07, 2004.
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