Expert advice

Aug 01, 2012,15.09 IST

Shift from equity to debt as you near investment goal

While investing in equity funds may help garner good returns over a longer time horizon, as you near your investment goal, it is advisable to start cutting down the risk gradually so that you are not left with a steep fall just when you wish to exit.

"If you have a 5 year time horizon then typically you would start with may be 100% of equity funds. And as you approach the goal, let us say two years down the line, you should cut some of these equity investments and move them into a balance fund, and then as you are only a couple of years away from your goal, move into accrual type of fund," Navlakhi suggests.

Below is the edited transcript of Navlakhi's interview with CNBC-TV18.

Q: I can invest Rs 20,000 per month on mutual funds. I have a time horizon of 5 years and want to earn Rs 20 lakh after 5 years. I have invested Rs 25000 in DSP BlackRock Tiger and Rs 15000 in HDFC Infrastructure fund growth and more such investments. In all, I have invested about Rs 1,40,000. What is your advice?

A: First of all, I really wonder why an investor needs to have such a wide portfolio. Most of the schemes that he has invested in, apart from Reliance vision and HDFC Top 200, seem to be in the energy or thematic infrastructure or basically in the thematic space.

These are typically funds, which carry high element of risk. So I think you would have seen that performance has not been there in mutual funds. Despite that, I am glad that you are still thinking of investing money in mutual funds.

If you have a 5 year time horizon then typically you would start with may be 100% of equity funds. Look at may be ICICI dynamic or HDFC Top 200. And as you approach the goal, let us say two years down the line, you should cut some of these equity investments and move them into a balance fund like an HDFC Balanced fund, and then as you are only a couple of years away from your goal, move into accrual type of fund.

Typically, one would suggest things like ICICI regular savings or Reliance regular savings fund. My current thought is that it may be a good idea to exit even on your infrastructure funds and rebuild your portfolio with a little more solid base. So I think that is very important for you to do.

Q: I can invest Rs 5,000 per month; I want Rs 40 lakh in 10 years, I have an LIC policy for which I pay Rs 12,000 yearly for a sum assured of Rs 8 lakh. My current list of investments include IDFC Premier Equity Fund, HDFC Equity, DSP BlackRock Top 100, HDFC Prudence, Birla Sun Life, what is your advice?

A: If you need to achieve your goal in the next 10 years, you will need to earn 13% per annum on your portfolio; now that is something you may possibly get in good equity markets. But I would think that when you are making a plan, it maybe advisable to look at return, which are slightly lower, in the range of maybe 8-12% per annum. If you are looking at an 8% per annum over 10 years then you may need to increase your monthly investment from Rs 5,000 to upto Rs 12,500, at least to Rs 6,000-Rs 7,000 a month so that you are certain of meeting your goal.

The schemes that you are invested in seem relatively good. Right now, I do not suggest tampering with any of those schemes. You can consider looking at adding this Rs 5,000 a month into something like an HDFC Equity Fund, which is a multi-cap fund. In case, you can add more money then consider adding IDFC Premier Equity, which is a mid cap fund. As you are approaching the goal, start cutting down the risk, so that you are not left with a steep fall just when you wish to exit.

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