I have monthly SIP investments for Rs 5,000 in HDFC Equity and HDFC Prudence; Rs 10,000 in HDFC Top 200; and Rs 7,000 in IDFC Premier Equity. I plan to invest in these funds for the next 10 years. Can I continue investing in these funds?
You have certainly picked up some good funds and are well-diversified across fund categories. However, you have been very focused on just one fund house. That is not a very wise decision. Moreover, all the three funds are managed by one fund manager - Prashant Jain. This defeats the purpose of smart diversification.
As on April 30, 2012, HDFC Prudence had 43 stocks in its portfolio; HDFC Top 200, 34; and HDFC Equity, 33. A quick analysis of these portfolios indicated an overlap in 21 stocks. When Prudence and Top 200 were compared the overlap was in 22 stocks; when Prudence and Equity were compared the overlap was in 25 stocks; and in the case of HDFC Top 200 and HDFC Equity, the overlap was in 23 stocks.
When investing in diversified equity funds, the objective should be to have a well-diversified portfolio of funds across market capitalisation and sectors. Instead of concentrating your investments into three funds from the same fund house accounting for 74 per cent of investments, you should consider reducing your investments in HDFC Mutual Fund to just two funds. Substitute the large- and mid-cap fund with another from the same category.