Grow With Diversification

A well-performing fund portfolio should have the right diversification across style & numbers…


I have SIPs of Rs 2,000 each in HDFC Top 200, Sundaram Select Midcap and ICICI Prudential Discovery. I want to invest in three more funds from HDFC Equity, Fidelity Equity and BSL Dividend Yield Plus and IDFC Premier Equity. Which one should I select?
- Giri Prasad

Schemes  Category  Rating  3-yrs ret (%)  5-yrs ret (%)
BSL Dividend Yield Plus Mid & Small Cap **** 22.76 21.61
Fidelity Equity Large & Mid Cap **** 14.13 20.54
HDFC Equity Multi Cap ***** 19.27 22.41
HDFC Top 200 Large & Mid Cap ***** 16.54 22.19
ICICI Prudential Discovery Mid & Small Cap **** 23.28 20.12
IDFC Premier Equity  Mid & Small Cap ***** 16.59 29.57
Sundaram Select Midcap Mid & Small Cap **** 15.91 17.15
Returns as on June 8, 2011 Ratings as on May 31, 2011

A good portfolio of funds is one that is well diversified in style and numbers. Your current selection of HDFC Top 200, Sundaram Select Midcap and ICICI Prudential Discovery is made of good funds, but it has a mid- and small-cap tilt, which is risky. Likewise, though your selection of additional funds that you wish to invest in is good; they do not offer you diversity. Selecting more mid- and small-cap funds only adds to duplication, which does not help in wealth creation.

We suggest you build a portfolio that is based on a core and satellite approach. This approach will provide the necessary stability and growth for long-term wealth creation. Ideally, you should look at investing 70-80 per cent in core funds and the remaining in satellite funds. You can have 3-4 funds as core holdings comprising large-cap and large- and mid-cap funds, with the satellite component with sector funds and multi-cap funds to achieve long-term wealth appreciation. This way, the investments have the ability to absorb shocks as well as have the potential to earn higher returns over various market cycles. As for investment in sector fund; do not look for an allocation above five per cent of your portfolio.

You can build the core holdings with large-cap funds such as DSPBR Top 100 Equity and Franklin India Bluechip and large- and mid-cap funds such as HDFC Top 200, which you are investing in and Fidelity India Growth. These will offer you stability. You can then add mid- and small-cap funds, multi cap funds and also sector funds to make the satellite component of your portfolio and achieve long-term wealth creation.



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