5 model mutual fund portfolios for different investor types .... Part 2
Want to invest in mutual funds but don’t know which schemes to buy? Already invested in mutual funds but not sure if they are appropriate? Hold a large number of schemes and want to cut them down to a manageable number?
If these issues are troubling you, Here we have designed five model fund portfolios for investors of different risk profiles and financial situations.
These five portfolios cover almost the entire spectrum of the investing population, ranging from aggressive investors who are willing to live with volatility to conservative investors who want reasonable growth with minimal risk. We also have a portfolio for retirees looking for returns that can beat inflation and provide regular income from the investments. Each of these portfolios have five funds. The funds have been chosen on the basis of their star rating by Value Research.
I. Wealth Maximiser:
For the young and the restless
Wealth Maximiser portfolio is for aggressive investors who don’t mind taking risks.
This portfolio has been designed for investors who want high returns even if it means taking high risks. It has two mid-cap funds, one small-cap fund and one multi-cap fund. The SBI Small and Midcap Fund has consistently topped the small-cap category in recent years. It has risen 66% in the past one year. The Mirae Asset Emerging Bluechip is another winner, topping the mid-cap category with over 23% returns in the past three years.
But though mid- and small-cap funds have given spectacular returns in the past one year, the road ahead could be quite bumpy. The mid-cap and small-cap stocks are looking overvalued and this is why some funds in this category have stopped accepting new investments and others are taking only SIPs under some conditions.
We have included two multi-cap funds to bring stability to Wealth Maximiser. The multi-cap DSP BlackRock Opportunities Fund and the ELSS scheme Axis Long-term Equity Fund have nearly 70% invested in large-caps. These funds will not be as volatile as the mid- and small-cap schemes.
Volatility is inherent to stocks. It is here that the SIP approach proves beneficial for investors. Even if the market corrects and the funds slip, the investor stands to benefit because he can get more units with the same SIP sum. Still, only investors who have the stomach for volatility should go for this portfolio. They should also be prepared to remain invested for at least 5-7 years to earn good returns from this portfolio.
Wealth Maximiser
Aggressive portfolio with mid and small-cap orientation.
II. Wealth Builder:
Cautiously optimistic on markets
Wealth Builder suits those who want to invest in stable large-cap stocks.
Small- and mid-cap funds might have zoomed, but even large-cap funds have not done badly. The large-cap category rose 26% in the past one year, though the returns have not been very high in the past 3-5 years. Even so, this portfolio of large-cap equity funds has the potential to churn out decent returns for the long-term investor.
We have chosen funds that score high on consistency and the risk-reward matrix. The Franklin India Flexi cap Fund, for instance, has a standard deviation of less than 12, which makes it among the most consistent performers in its category.
The other funds in the portfolio have an equally impressive track record. The Aditya Birla Sun Life Frontline Equity has consistently outperformed both the benchmark and the category average by a wide margin. The Kotak Select Focus is another fund that has delivered consistent returns.
Will these large-cap funds be able to generate alpha for the portfolio? The Motilal Oswal MoST Focused Multicap 35 fund is best positioned to do that. This multi-cap fund earned more than 35% in the past one year and has delivered SIP returns of over 23% in the past three years. The ELSS scheme in the portfolio could also chip in here. The Tata Tax Savings Fund has 44% of its corpus invested in mid-cap and small-cap stocks.
Wealth Builder
Cautiously aggressive portfolio with large-cap orientation.
III. Stable Wealth:
Get the best of both worlds
Stable Wealth is for investors who want a balanced mix of debt and equity.
Even though they might be optimistic, not everyone is willing to bet big on the stock markets. The Stable Wealth portfolio is designed to give investors reasonable growth without too much risk. It has three equity-oriented balanced schemes, one ELSS fund and one short-term debt fund. All three balanced funds have impressive credentials. They have outperformed the category and their benchmarks.
Balanced funds divide their corpus between debt and equity, giving investors the best of both worlds. The equity portion generates returns when markets are doing well, and the debt portion acts as a cushion when equities are headed southwards.
The best part of a balanced fund is that although nearly 40% of the corpus is in debt, it gets the same tax treatment as an equity fund. So, 40% of the corpus in debt effectively earns tax-free returns for the investor.
The ELSS fund in the portfolio, IDFC Tax Advantage, is an equity fund. It has ranked among the top-performing ELSS funds in recent years. The debt fund in Stable Wealth lends stability to the portfolio. The Franklin India Short Term Income Fund has been a consistent performer, generating nearly double-digit SIP returns in the past five years. That makes it a better option than bank deposits and other fixed income instruments.
Stable Wealth
Balanced portfolio with lower exposure to equity.
< ..
IV. Wealth Secure:
When safety is paramount
Wealth Secure is designed for investors who don’t want to risk their money in stocks.
Some investors just can’t stand the prospect of losing money. For them, the Wealth Secure can be an ideal option. The fund has three short-term debt funds, one debtoriented hybrid fund and an ELSS scheme. The equity exposure is only 24% of the corpus, while the rest is in the safety of debt.
Another caveat is needed here. Though debt funds are not as volatile as equity schemes, it is a misconception that they can’t lose money. Debt funds are sensitive to interest rate movements and will lose money if interest rates go up. Long-term debt funds have lost 1.5% in the past six months. Their one-year returns are only 2.6%, which is less than what a savings bank account offers.
For the same reason, we have included only short-term debt funds in the portfolio. These funds are less volatile and focus on earning from interest accruals than on capital gains. The Baroda Pioneer Short-term Bond Fund and the Franklin India Low Duration Fund have generated almost 9% returns in the past one year. The hybrid scheme in the portfolio, ICICI Prudential Child Care Plan is a consistent outperformer, while the ELSS fund, Aditya Birla Sun Life Tax Relief 96 provides the necessary tinge of equity to the fund.
Wealth Secure
Conservative allocation with very low exposure to equity.
V. Income Generator:
Regular income in the golden years
Income Generator is for retirees looking for a monthly income from their investments.
Unlike the SIP inflows in other portfolios, income generator starts with a lumpsum investment and withdraws monthly sum for the investor. It has two medium-term income funds, two short-term debt funds and one debt-oriented hybrid fund. Every month, Rs 2,000 is withdrawn from each of the five funds by the investor.
Why should an investor go for this arrangement when he can get assured returns from bank deposits? One, bank deposit rates have come down and are likely to fall further. Debt funds yield slightly better returns than fixed deposits.
But the real benefit comes from the tax advantage that debt funds have over fixed deposits. The income from bank deposits is fully taxable. In debt funds, the gain is only a thin sliver of the redemption proceeds. A big part of the redemption is the principal amount which is not taxable. It keeps getting better as years go by.
After three years, gains are treated as long-term capital gains and taxed at a lower rate of 20% after indexation. Retirees should consider parking their retirement corpus in a good debt fund and then start systematic withdrawal plans to get a monthly income. The Income Generator portfolio does exactly this.
Income Generator
Meant for investors who are looking for regular income in retirement.
Happy Investing
Source: Economictimes.com
Want to invest in mutual funds but don’t know which schemes to buy? Already invested in mutual funds but not sure if they are appropriate? Hold a large number of schemes and want to cut them down to a manageable number?
If these issues are troubling you, Here we have designed five model fund portfolios for investors of different risk profiles and financial situations.
These five portfolios cover almost the entire spectrum of the investing population, ranging from aggressive investors who are willing to live with volatility to conservative investors who want reasonable growth with minimal risk. We also have a portfolio for retirees looking for returns that can beat inflation and provide regular income from the investments. Each of these portfolios have five funds. The funds have been chosen on the basis of their star rating by Value Research.
I. Wealth Maximiser:
For the young and the restless
Wealth Maximiser portfolio is for aggressive investors who don’t mind taking risks.
This portfolio has been designed for investors who want high returns even if it means taking high risks. It has two mid-cap funds, one small-cap fund and one multi-cap fund. The SBI Small and Midcap Fund has consistently topped the small-cap category in recent years. It has risen 66% in the past one year. The Mirae Asset Emerging Bluechip is another winner, topping the mid-cap category with over 23% returns in the past three years.
But though mid- and small-cap funds have given spectacular returns in the past one year, the road ahead could be quite bumpy. The mid-cap and small-cap stocks are looking overvalued and this is why some funds in this category have stopped accepting new investments and others are taking only SIPs under some conditions.
We have included two multi-cap funds to bring stability to Wealth Maximiser. The multi-cap DSP BlackRock Opportunities Fund and the ELSS scheme Axis Long-term Equity Fund have nearly 70% invested in large-caps. These funds will not be as volatile as the mid- and small-cap schemes.
Volatility is inherent to stocks. It is here that the SIP approach proves beneficial for investors. Even if the market corrects and the funds slip, the investor stands to benefit because he can get more units with the same SIP sum. Still, only investors who have the stomach for volatility should go for this portfolio. They should also be prepared to remain invested for at least 5-7 years to earn good returns from this portfolio.
Wealth Maximiser
Aggressive portfolio with mid and small-cap orientation.
II. Wealth Builder:
Cautiously optimistic on markets
Wealth Builder suits those who want to invest in stable large-cap stocks.
Small- and mid-cap funds might have zoomed, but even large-cap funds have not done badly. The large-cap category rose 26% in the past one year, though the returns have not been very high in the past 3-5 years. Even so, this portfolio of large-cap equity funds has the potential to churn out decent returns for the long-term investor.
We have chosen funds that score high on consistency and the risk-reward matrix. The Franklin India Flexi cap Fund, for instance, has a standard deviation of less than 12, which makes it among the most consistent performers in its category.
The other funds in the portfolio have an equally impressive track record. The Aditya Birla Sun Life Frontline Equity has consistently outperformed both the benchmark and the category average by a wide margin. The Kotak Select Focus is another fund that has delivered consistent returns.
Will these large-cap funds be able to generate alpha for the portfolio? The Motilal Oswal MoST Focused Multicap 35 fund is best positioned to do that. This multi-cap fund earned more than 35% in the past one year and has delivered SIP returns of over 23% in the past three years. The ELSS scheme in the portfolio could also chip in here. The Tata Tax Savings Fund has 44% of its corpus invested in mid-cap and small-cap stocks.
Wealth Builder
Cautiously aggressive portfolio with large-cap orientation.
III. Stable Wealth:
Get the best of both worlds
Stable Wealth is for investors who want a balanced mix of debt and equity.
Even though they might be optimistic, not everyone is willing to bet big on the stock markets. The Stable Wealth portfolio is designed to give investors reasonable growth without too much risk. It has three equity-oriented balanced schemes, one ELSS fund and one short-term debt fund. All three balanced funds have impressive credentials. They have outperformed the category and their benchmarks.
Balanced funds divide their corpus between debt and equity, giving investors the best of both worlds. The equity portion generates returns when markets are doing well, and the debt portion acts as a cushion when equities are headed southwards.
The best part of a balanced fund is that although nearly 40% of the corpus is in debt, it gets the same tax treatment as an equity fund. So, 40% of the corpus in debt effectively earns tax-free returns for the investor.
The ELSS fund in the portfolio, IDFC Tax Advantage, is an equity fund. It has ranked among the top-performing ELSS funds in recent years. The debt fund in Stable Wealth lends stability to the portfolio. The Franklin India Short Term Income Fund has been a consistent performer, generating nearly double-digit SIP returns in the past five years. That makes it a better option than bank deposits and other fixed income instruments.
Stable Wealth
Balanced portfolio with lower exposure to equity.
< ..IV. Wealth Secure:
When safety is paramount
Wealth Secure is designed for investors who don’t want to risk their money in stocks.
Some investors just can’t stand the prospect of losing money. For them, the Wealth Secure can be an ideal option. The fund has three short-term debt funds, one debtoriented hybrid fund and an ELSS scheme. The equity exposure is only 24% of the corpus, while the rest is in the safety of debt.
Another caveat is needed here. Though debt funds are not as volatile as equity schemes, it is a misconception that they can’t lose money. Debt funds are sensitive to interest rate movements and will lose money if interest rates go up. Long-term debt funds have lost 1.5% in the past six months. Their one-year returns are only 2.6%, which is less than what a savings bank account offers.
For the same reason, we have included only short-term debt funds in the portfolio. These funds are less volatile and focus on earning from interest accruals than on capital gains. The Baroda Pioneer Short-term Bond Fund and the Franklin India Low Duration Fund have generated almost 9% returns in the past one year. The hybrid scheme in the portfolio, ICICI Prudential Child Care Plan is a consistent outperformer, while the ELSS fund, Aditya Birla Sun Life Tax Relief 96 provides the necessary tinge of equity to the fund.
Wealth Secure
Conservative allocation with very low exposure to equity.
V. Income Generator:
Regular income in the golden years
Income Generator is for retirees looking for a monthly income from their investments.
Unlike the SIP inflows in other portfolios, income generator starts with a lumpsum investment and withdraws monthly sum for the investor. It has two medium-term income funds, two short-term debt funds and one debt-oriented hybrid fund. Every month, Rs 2,000 is withdrawn from each of the five funds by the investor.
Why should an investor go for this arrangement when he can get assured returns from bank deposits? One, bank deposit rates have come down and are likely to fall further. Debt funds yield slightly better returns than fixed deposits.
But the real benefit comes from the tax advantage that debt funds have over fixed deposits. The income from bank deposits is fully taxable. In debt funds, the gain is only a thin sliver of the redemption proceeds. A big part of the redemption is the principal amount which is not taxable. It keeps getting better as years go by.
After three years, gains are treated as long-term capital gains and taxed at a lower rate of 20% after indexation. Retirees should consider parking their retirement corpus in a good debt fund and then start systematic withdrawal plans to get a monthly income. The Income Generator portfolio does exactly this.
Income Generator
Meant for investors who are looking for regular income in retirement.
Happy Investing
Source: Economictimes.com
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