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Too Ambitious

I invest Rs 14,000 per month in nine funds through SIP. My aim is to build an asset base of around Rs 50 to 60 lakh in the next eight years. Is it achievable? -Alpana Dhole

I am a regular investor and do not pay any attention to market variations, stock prices and NAVs on regular basis. So far, I have also kept under control the temptation of investing in a new fund (except for HDFC Core and Satellite). I invest Rs 14,000 per month in nine funds through SIP. My primary aim is to build an asset base of around Rs 50 to 60 lakh in the next eight years. Is it achievable? Is my selection of funds appropriate? What changes would increase the chances of achieving my goal?
-Alpana Dhole

Before we analyse your portfolio, let's evaluate the feasibility of your target. To earn Rs 50 lakh through a monthly investment of Rs 14,000, your funds should generate 27.92 per cent every year. This is probably too ambitious. However, you can enhance your chances of earning Rs 50 lakh in the near future by two different approaches. Before explaining that, let's first see what should be your expectations from funds.

Long-term investors should expect 13 to 15 per cent annualised returns. Though it's still a guess, 15 per cent definitely looks a realistic assumption given the fact that an average diversified equity fund has generated nearly 23 per cent annualised return in the last five years and only 10 of the 51 funds, with at least a history of five years, have failed to earn even 15 per cent.

Moving to the issue of your targeted amount, you can achieve it either by investing more or increasing the time period of your investments. If your current investment of Rs 14,000 grows at 15 per cent per annum, it would take you nearly 12 years to earn Rs 50 lakh. However, if you increase you investment to Rs 26,750 per month, you can achieve your target in eight years.

If both the options look unrealistic, you can opt a middle path. Relax the number of years that you wish to invest and keep raising your SIP amount.

Now let's get back to your portfolio. Nearly 92 per cent of your assets are in equities, 4.24 in debt (coming from HDFC Prudence) and the rest in cash. Majority of the funds have earned five or four star ratings from Value Research. Mid- and smaller companies have a dominance with an allocation of 57 per cent. Overall, your portfolio looks in shape given your long term investment horizon and expectation of high return. However, your equity-centric portfolio will definitely test your resolve at some point as it's bound to go through volatile phases. Still, don't lose patience and keep doing what you are doing right now.

The only minor concern we have is that your assets are concentrated in two AMCs. But both Franklin and HDFC are quality AMCs and therefore deserve your faith. Going forward, try to limit the number of funds in your portfolio. At present, it looks healthy and complete as per your needs. Finally, you have done well to ignore new funds. Why entrust your funds to an unknown identity if your have some solid and well-established options available? Your youngest fund (HDFC Core and Satellite) has done reasonably well so far. However, it's still too early for us to comment on it.

Alpana's Portfolio
Fund  % Allocation
Franklin India Bluechip 14.28
Franklin India Prima 28.57
Franklin India Taxshield 7.16
HDFC Capital Builder 7.14
HDFC Core & Satellite 7.14
HDFC Prudence 14.29
HDFC Taxsaver 7.14
HDFC Top 200 7.14
Reliance Growth 7.14
Total  100