Reduce Fund Appetite | Value Research I have been regularly investing in mutual funds since October 2005. I have used a combined strategy of lump sum investments as well as SIPs. I have a long-term outlook. I want a feedback on my portfolio.--Amit
The Plan

Reduce Fund Appetite

I have been regularly investing in mutual funds since October 2005. I have used a combined strategy of lump sum investments as well as SIPs. I have a long-term outlook. I want a feedback on my portfolio.

I have been regularly investing in mutual funds since October 2005 and I have used a combined strategy of lump sum investments as well as SIPs. I want a feedback on my portfolio as well as suggestions to reshuffle allocations. Apart from this, is there any other scheme in which I should invest? I have a long-term outlook and do not intend redeeming funds for three to four years.

Amit's Portfolio
Funds  % Allocation
DSPML Equity 1.15
DSPML Opportunities-G 4.15
Franklin India Bluechip-G 7.10
Franklin India Flexi Cap-G 2.09
Franklin India Opp-G 4.33
Franklin India Prima-G 0.98
Franklin Infotech-G 2.15
HDFC Capital Builder-G 1.08
HDFC Core & Satellite-G 0.52
HDFC Equity-G 2.16
HDFC Prudence-G 4.79
HDFC Top 200-G 2.54
HSBC Advantage India-G 1.02
Kotak 30-G 2.48
Kotak Balance 1.51
Kotak Opportunities-G 2.60
Magnum Balanced-G 1.93
Magnum Contra-G 2.20
Magnum Global-G 2.24
Magnum Multiplier Plus-G 2.65
ICICI Pru Discovery-G 1.02
ICICI Pru Dynamic-G 2.76
ICICI Pru Emerging STAR-G 2.84
ICICI Pru Fusion-G 1.64
ICICI Pru Growth-G 1.07
ICICI Pru Infrastructure-G 0.65
ICICI Pru Services Industries-G 4.35
Reliance Diversified Power Sector-G 2.42
Reliance Growth-G 5.00
Reliance Pharma-G 1.79
Reliance Vision-G 4.63
SBI Bluechip-G 1.59
Sundaram BNP Paribas CAPEX Opp.-G 2.22
Sundaram BNP Paribas India Leadership-G 1.00
Sundaram BNP Paribas Select Focus-G 1.05
Sundaram BNP Paribas Select Midcap-G 5.63
Tata Contra-G 3.10
Tata Infrastructure-G 2.23
Templeton India Equity Income-G 3.47
Total  100
Running SIP's  
DSPML Equity 
Franklin India Flexi Cap 
Franklin India Prima Fund 
HDFC Capital Builder Fund 
HDFC Core & Satellite Fund 
HDFC Prudence Fund 
HSBC Advantage India Fund 
ICICI Pru Discovery Fund 
ICICI Pru Growth Plan 
ICICI Pru Infrastructure Fund 
Reliance Growth Fund 
Sundaram BNP Paribas Select Focus 
Sundaram BNP Paribas Select Midcap 
Sundaram India Leadership Fund 

Hats off to you for managing such a huge portfolio! But all your troubles have been in vain for such an extensive diversification strategy is really quite futile, neither does it achieve effective diversification nor does it position your portfolio towards superior returns. Monitoring a portfolio of 40 funds is bound to be a cumbersome task. Most equity schemes restrict their portfolio sizes to 50 odd stocks; as a result investment in large number of similar funds translates into fragmented holdings among these funds. With a large number of funds, a portfolio usually starts resembling a broad index, and out-performance becomes difficult. Obviously, there's no point bearing the expenses of funds just to hold an index! A better option is to stick to a maximum of two funds that have a similar objective. For instance, your portfolio currently consists of seven odd funds that have a similar large-cap orientation. In fact six out of these 40 schemes have maintained Reliance Industries as their top holding. It would be better if you focus upon the more consistent performers out of these, while exitig the remaining.

Your initial fund selection has been of a high-quality; some of the SIP funds selected by you, however, are not as impressive. We have pruned your holdings in 40 different funds to 16 funds. We have not added any more funds but have changed allocations of existing funds. While doing so, we have focussed upon increasing the weightage of funds which have a well-proven track record of superior performance across market cycles. Some of the relatively new funds which have shown a lot of promise in their brief performance history have also been retained, while a number of small and insignificant holdings have been done away with.

A further rationalisation of your SIP has been suggested by maintaining investments in four funds. These schemes have also been selected, keeping in mind your total exposure to various AMC's .

Fix It
At close to 19 per cent your exposure to technology stocks is quite high. Given that technology stocks constitute the largest allocation in most equity diversified fund portfolios, a separate exposure through Franklin InfoTech fund does not serve much purpose. In fact it adds an unnecessary risk to your portfolio. You must have witnessed this yourself through your holdings in Reliance Pharma and ICICI Prudential FMCG, over the past year. This is why we do not recommend investors to take a direct exposure to any particular sector through sector specific funds; a better option is to leave the decision of picking opportune sectors to fund managers. It is ideally better to allow an opportunities fund to make a sector call on your behalf rather than entering a sector yourself. Having said that, we suggest you maintain your holdings in the ICICI Prudential Infrastructure, ICICI Prudential Services Industries and Reliance Diversified Power Sector, owing to the optimistic outlook for these sectors as well as for the fact that you entered these funds at a good time. Moreover these funds are themselves diversified to include many companies from different sectors. Over time as you will increase investments in other funds the proportion of risk assumed here will reduce. We also suggest consolidation of your infrastructure holdings in ICICI Prudential Infrastructure by moving funds from Tata Infrastructure fund.

The allocation to Templeton India Equity Income has been increased primarily because the fund has emerged as an important diversification tool for your portfolio owing to its exposure to foreign equities (exposure varies between 15-29 per cent).

As regards your holdings in the various opportunities funds we have suggested a higher allocation to Franklin India Opportunities fund for its aggressive stance. But if you are a kind of investor who gets nervous seeing his investments plummet in the short run then you could consider allocating more funds to DSPML Opportunities.

Do not make the suggested changes blindly; assess the tax implications in case of funds held for less than a year. Also there will be entry loads to consider as well. ICICI Prudential will also bear an expense on redemption due to its close ended nature. You can use the portfolio tool on our website which will give you an organised picture of your portfolio and enable you to identify the chinks in your portfolio.

Suggested Portfolio
Funds  % Allocation
DSPML Opportunities-G 6.42
Franklin India Flexi Cap-G 4.8
Franklin India Opp-G 8.02
HDFC Equity-G 10.38
HDFC Prudence-G 6.96
Magnum Balanced-G 4.22
Magnum Contra-G 8.36
Magnum Global-G 8.05
ICICI Pru Dynamic-G 3.06
ICICI Pru Infrastructure-G 2.54
ICICI Pru Services Industries-G 4.08
Reliance Diversified Power Sector-G 2.68
Reliance Growth-G 7.51
Reliance Vision-G 8.51
Sundaram BNP Paribas Select Midcap-G 7.85
Templeton India Equity Income-G 6.56
Total  100
Suggested SIP  
Franklin India Flexi Cap 
HDFC Equity 
HDFC Prudence 
Reliance Growth 

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