Investors should cap foreign market investments at 15-20%

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Please advise on investing in Motilal Oswal Nasdaq 100 exchange-traded fund via a systematic investment plan for the long term. Is it good for, say, 10 years? If not, are there any peers similar to this scheme?

—T. Ramesh Babu

As recent years have shown, having diversification in one’s portfolio across geographies is a good thing. And, when it comes to Indian markets, using the US market as a diversifier has worked out effectively to stabilize and bolster returns. Investing in US market yields the twin benefits of gaining from the growth of the strongest equity market in the world, along with the growth in strength of the US dollar. So, using a diversified equity instrument from the US market is a good idea for any long-term portfolio. That said, there are two things to note. One, an investor should not go overboard while going overseas—an allocation of 15 -20% would suffice to provide the requisite variety in the portfolio. Investors should also look to their domestic funds’ portfolios to see if there is already such a diversification built in. And two, it is important to not go cherry-picking with overseas instruments and use broad indices for investments.

In your case, the answer is yes as long as you have a portfolio in place with domestic equity exposure. To augment such a portfolio, you can consider the Nasdaq 100 ETF, or better yet, an S&P 500 ETF available from a handful of fund houses. The S&P 500 index would be a stabler and less volatile index to lean on than the more narrowly focused Nasdaq index.

I am 41 years old and have the following lump sum investments: Tata Midcap Growth Fund ( 1.4 lakh); Tata Digital India ( 20,000); HDFC Short Term Debt Fund ( 60,000); HDFC Top 100 ( 11,000) and HDFC Flexicap ( 10,000). I am planning to invest 25,000 per month additionally. Please advise which mutual funds should I target. My goal is my son’s college education abroad. He is seven now. I retire in 10 years.

—Rajesh

You have two financial goals that are coming up in a span of 10 years. Given the sizes of these goals, and the current investments you have, it would be difficult to meet both with a monthly investment of 25,000 starting now. An education abroad would, in 10 years, cost more than 1 crore, and retirement will likely require a higher corpus. Your investments (as detailed in the mail, and not taking into account your other retirement savings) would amount to less than 1 crore in this time frame. So, from a planning perspective, you could move your retirement further and/or take an education loan for your son’s college expenses. However, that should not stop you from starting the systematic investment plan and augmenting your savings. I would recommend that you take a fresh approach to your monthly investment without worrying about your existing funds. For 25,000 per month, funds such as HDFC Top 100 (20%), Mirae Asset Emerging Blue-chip (25%), Parag Parikh Flexicap Fund (25%), and HDFC Short Term Debt Fund (30%) would make a good portfolio.

Srikanth Meenakshi is co-founder, PrimeInvestor.in

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