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Target 2010

I am a government servant and my wife teaches in a private school. Together, we earn more than Rs 30,000 per month. We want our money to grow and need high returns after 2010.
-Bharat Bhushan

I am a government servant and my wife teaches in a private school. Together, we earn more than Rs 30,000 per month. I am retiring in January 2008 and my wife in October 2010. We want our money to grow and need high returns after 2010. We started investing in mutual funds in late 2004 and so far have invested in nine funds. Please review my portfolio. Do I need to make any change now or at a later stage? At present, we have a monthly SIP of Rs 10,500 and are planning to increase it to Rs 14,000 from next financial year. We have decided to invest in HDFC Equity. As you can see, I have invested in four ELSS funds. In fact Rs 2,000 SIP per month in them is in addition to my tax savings needs. Is that a wise strategy? Between ELSS and diversified equity funds, which one is better?
-Bharat Bhushan


Mr Bhusan's Portfolio
Funds  % Allocation
Fidelity Equity 2.32
Franklin India Flexi Cap 9.32
Franklin India Taxshield 26.13
HDFC LT Advantage Fund 5.60
HDFC Taxsaver 5.57
Reliance Tax Saver 6.96
Tata Dividend Yield 4.69
Tata Infrastructure 4.66
Templeton India Pension Plan 34.75
Total  100


According to the analysis by the Portfolio Manager at www.valueresearchonline.com, 73.92 per cent of your money is invested in equities, 19.90 in debt instruments and the rest in cash. Eight of your funds are equity schemes, while Templeton India Pension Plan is a debt-oriented mutual fund that provides you tax benefits also. More than half of your funds don't have any significant track record but the good part is that more than 72 per cent of your assets are invested in funds with long track record. Large-cap stocks (58.47 per cent) lead your portfolio, followed by 29.79 and 10.52 per cent allocation to mid- and small-cap stocks.

Since you have at least five years by your side, this portfolio looks good enough. It also gives you enough time to test your new funds and take corrective measures if any of them start to 'misbehave'. The four rated funds in your portfolio are among the best in their respective categories and you should continue investments in them. For your additional investments you have selected a good fund in HDFC Equity. We feel you can do without any additional fund in future. While your investments have potential to deliver, your financial success depends on how well you preserve the returns in future. As you have mentioned that you might be needing the money after 2010, be alert to rebalance your portfolio towards debt once that goal nears. The money that you need to consume in the next two to three years should be in debt funds.

Coming back to your query regarding additional investments in ELSS funds, we feel it's not a bad idea. At the same time, it's not a great idea either because you have comparable funds in diversified equity category where you get instant liquidity. Why lock the money for three years if you can earn similar returns with higher liquidity?

Finally, there's hardly any difference between an ELSS and diversified equity fund, except that the former gives you tax benefit but takes your money away for three years.