I am a 40-year-old NRI and do not foresee a need for invested money in the next five to 10 years. My two kids are in primary school and I have to make provision for their education, my retirement, a house, post-retirement medical needs etc. I can't take too much risk. However, I can hold on to my investments even if they drop temporarily. I am planning to increase my current investments by 20 per cent. Please review my portfolio and suggest a suitable strategy. How are real estate mutual funds doing? Is it the right time to invest in mutual funds, equities or real estate? Who are good portfolio managers?
-Achal
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It's always a great time to invest. The sooner you start the better. The effect of compounding is magical. Einstein is rumoured to have said that compound interest was the greatest mathematical discovery of all times.
Among mutual funds, equities and real estate, you should choose one or all depending on your risk profile. Real estate mutual funds do not exist in India yet.
On who are good portfolio managers, Franklin Templeton has maximum number (as many as 13) of four and five star funds, followed by HDFC Mutual (9), Kotak Mutual (6), UTI (6) and Principal (6). You choose.
Now let's get back to your portfolio. An 11.15 per cent exposure to equities is way too less for your age and investment horizon of five to 10 years.
You can't take too much risk. That's fine. But you need the power of equities to beat the inflation monster.
Given your long-term investment horizon an increased allocation to diversified equity funds, say 30 per cent, would help.
You can also consider balanced funds (you already have one). They maintain 60:40 equity-debt ratio, and are less volatile than pure equity funds. HDFC Prudence, Kotak Balanced and Sundaram Balanced are some other good choices.
The large-cap, mid-cap and small-cap balance in your existing portfolio is apt for your needs. Try and maintain this level.
One problem that we discovered in your portfolio is the dominance of new funds. Before signing cheques in favour of any fund, you should see their performance record. You don't know how a new fund will behave in future. Therefore, you should opt for funds which have already seen different market cycles and successfully managed them.
When you increase your investments by 20 per cent, allocate the money to two or three good diversified equity and balanced funds. Opt for systematic investment planning while making fresh investments. That way, you will not only save loads (most funds waive loads on SIP) but also participate in different market conditions.
Finally, don't worry about the long black stretch in your portfolio starmeter. We don't rate new funds. You can read more on our rating methodology at https://www.valueresearchonline.com/fund-rating-methodology/
This article was originally published on April 21, 2005.
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