Diversification by Numbers

A diversified portfolio requires the right mix of funds across categories


I plan to invest in a mutual fund. I have chosen four schemes namely HDFC Equity, DSP Blackrock Equity, Reliance Regular Savings Equity, IDFC Premier Equity Plan A and BSL Frontline Equity Plan
- Murali Yuva

You have selected some really good funds to form a portfolio. However, planning seems to be lacking with this portfolio. Having five funds does not lead to diversification. You need to have a mix of styles, investment themes and fund houses to get the right mix of funds for a well-developed portfolio. You should look at investing 70-80% in the core funds and the remaining in the satellite funds. This way the core will take care of stability and the satellite will help your portfolio earn the necessary push to improve the performance of the overall portfolio. Have 2-3 funds to form the core holding of your portfolio comprising large-cap and large- and mid-cap funds, with the satellite element with sector funds that you have to achieve longterm wealth appreciation. In this way the investments will be able to absorb shocks as well as have the potential to earn higher returns over various market cycles.

Schemes  Category  Rating  3-yrs ret (%)  5-yrs ret (%)
HDFC Equity Multi Cap **** 11.68 17.46
DSPBR Equity Multi Cap **** 7.45 17.73
Reliance Regular Savings Equity Multi Cap **** 2.99 22.16
IDFC Premier Equity Plan A Mid & Small Cap **** 7.84 21.44
BSL Frontline Equity Plan  Large & Mid Cap ***** 6.45 17.57
Returns as on February 28, 2011 Ratings as on January 31, 2011


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