I am a 21-year-old student. I receive a stipend of Rs 5,000 a month. I am investing Rs 1,000 each in Birla Sun Life India Reforms Fund and Reliance Gold Savings Fund every month. I started these investments when the funds were launched.

I had also invested Rs 7,000 lumpsum in Reliance Gold Savings (fund of fund) when it was launched. I have direct investments of Rs 26,500 in equities. I also have a fixed deposit of Rs 13,000 invested at 9.25 per annum maturing on March 31, 2013. I have a balance of Rs 20,000 in my savings bank account and I can also invest another Rs 1,000 a month from the stipend I receive. I am not sure where to invest this. Please give your suggestions.

Kindly recommend changes if needed and specifically comment about Birla Sun Life India Reforms Fund which is consistently under-performing. My risk appetite is above average and I can hold investments up to two years. 

Jignesh K. Padiya

It is good to know that you are investing early on in life. Keep up the momentum! Only make note that equity investments, especially made through SIPs, will work for you only if you invest for at least three years at a stretch. Only if you had the advantage of investing in market lows can you see your money multiply fast. But that is not easy.

If you are investing your surplus in mutual funds, it should be money that you can put away for the long term. Given your age, you should certainly be able to do this.

But if you have any financial requirements within the next two years, then equities may not be a sure shot to both save and grow your money. You will be better off parking the money in bank fixed deposits or short-term debt funds.

Also, as far as possible, set your long-term goals and work towards them. While it may be too early now, once you start on a regular salary, work towards achieving specific goals, such as buying a house or building a retirement kitty. That way, you will know how much you need to save.

Portfolio

Moving to your portfolio, if Birla Sun life Indian Reforms and Reliance Gold Savings are the only funds that you hold, then they may not make for a sound portfolio. For one, the Reforms fund was launched in 2010 and has a very limited track record to rely on. Its exposure to underperforming sectors such as construction, energy and engineering has not helped it deliver.

The fund’s return trails both the equity fund category average as well as its benchmark S&P CNX 500 over one- and two-year time frames. While it has shown signs of improvement since January this year, it may not fit a core portfolio.

We suggest you stop SIPs in the fund and exit it once you cross the minimum holding period, to avoid exit load.

You can instead invest in HDFC Equity. This is a fund with a steady track record and has delivered returns across market cycles. Start a SIP in this and ensure you keep it going for at least three years. Review performance every quarter against the benchmark.

We will not suggest an exposure of over 10 per cent of your savings in gold. It cannot also form part of your core portfolio. It is best used as a diversifier since gold, by itself, has no underlying fundamentals to back it.

Rejig your portfolio to ensure you are not overweight on gold. If need be, stop gold investments for sometime to ensure you maintain a balance.

It is better to have some money in your savings bank for meeting contingencies.

The additional Rs 1,000 a month that you can spare can go to UTI Opportunities. As and when your surplus increases, increase SIPs in the above funds. Also, add mid-cap funds such as IDFC Premier Equity. This can account for 20-25 per cent of your equity portfolio.

*** I work in a private company and earn Rs 35,000 a month after tax. Since this is my first job, the concept of investing is alien to me. I would like to invest 5,000 per month excluding provident fund and insurance premium. I have a reasonable risk appetite and therefore want to invest more in equity and less in debt. Which mutual fund should I go for?

Karan Gulati

We suggest you make use of your employees’ provident fund and public provident fund, besides insurance premium for the Rs 1 lakh tax deduction.

Use mutual funds to build long-term wealth. You can invest in equity funds if you believe you can take the ups and downs of the stock market. In the short to medium-term, you can lose your capital in equities.

Allocation

Even if you have a high risk appetite, ensure that you have at least 30 per cent in debt. The debt component may be slowly increased in your 40s and 50s. If you are interested in gold, then 10 per cent of your savings can be in gold.

Canara Robeco Equity Diversified and Quantum Long Term Equity are good options to begin with. Start SIPs of Rs 2,500 each in them. Reduce one of these by Rs 500, if you wish to invest in gold. You can go for SIPs in Reliance Gold Savings.

Queries may be e-mailed to mf@thehindu.co.in

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