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I'm 29 years old. Depending on my objective, I have selected some funds for investment.

Objective I
Wealth creation, child's education

Risk
Low / below average

Return
High

Funds selected
Franklin India Prima Plus
Sundaram Select Mid Cap
HDFC [Get Quote] Equity
Reliance [Get Quote] Growth

Objective II
Retirement

Risk
Low

Return
Average / above average

Funds selected
HDFC Prudence
HDFC Tax Saver

I intend to invest via Systematic Investment Plans regularly for the next 10 years. Can you evaluate my portfolio and suggest any improvements? Should I invest in more funds or is this sufficient?

Also, I have already invested Rs 7,000 in DSP ML Top 100 and Rs 10,000 in UTI Master Value Equity funds. Since the rating of these funds has fallen down, is it appropriate to continue investing in these funds or should I stop?

- Arun

It is good to see that you are thinking and planning intensely about your long-term goals, and going about executing your plans in the right way. You have chosen good funds for yourself.

Franklin India Prima Plus and HDFC Equity are apt choices to form the base of your fund investments while Sundaram Select Midcap and Reliance Growth are two of the best available to add that extra punch.

The diversity of fund houses adds another dimension to your selection.

You have not mentioned the proportion in which you are planning to invest in these funds. We will advise you to put a larger part in Franklin India Prima Plus and HDFC Equity.

The above two funds have the flexibility to invest across market capitalisations and are capable of adapting to the times. Therefore, they are ideal vehicles to build wealth over long-term.

As the time to spend on education starts nearing, shift this money to relatively safer funds like Monthly Income Plans.

HDFC Prudence is also one of the best in the business, when it comes to relatively safer balanced funds. These are funds that invest in both equity and debt. 

With returns as high as a pure equity fund, yet a lower degree of risk, your retirement money will be well taken care of in this fund.

HDFC Taxsaver will be a little aggressive as it invests substantially in mid-caps.

Right now, you can go for a higher equity allocation and add another diversified equity fund or a tax-saving fund (diversified equity fund with a tax benefit under Section 80C). But gradually, the proportion of balanced funds and MIPs will have to be increased, and you may even consider introducing other fixed-return instruments.

Regarding the number of funds, there is scope to add a couple of funds. Generally speaking, you can have a well-diversified portfolio with about seven-eight funds. But your present selection is good and you can start off with them.

Out of the two funds in which you have investments presently, DSPML Top 100 Equity is a decent fund. It is true that it has been quite an average performer, but that is also because of the fact that its mandate restricts it to the biggest Indian companies, while the rally of the past three years was led by mid- and small-cap stocks. In fact, it has been impressive in the recent market decline. With the returns of 12.54% since the start of 2006 till July 14, it is far ahead of an average fund's 4.57%. If you are looking to invest in large-cap companies, then this fund is definitely worth considering.

UTI Master Value, on the other hand, has disappointed. It has a portfolio loaded with small-cap stocks but despite that, it has been unable to beat an average fund in the last couple of years. And expectedly, it has lost substantially in the recent market fall.

You can find better options among mid-cap oriented funds. The ones you have chosen now -- Reliance Growth and Sundaram Select Midcap -- are good choices for aggressive funds.

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