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I am a retired government employee, and have invested Rs 11 lakh across 11 equity funds. My investment horizon is of two to three years. What is the ideal asset allocation for me?
- SK Bakliwal

I am a retired government employee, 60 years of age. I have invested close to Rs 11 lakh across 11 diversified equity funds. My investment time horizon is of two to three years with a return expectation of 20-30 per cent. I started investing in October 2006 and bulk of my investments was made in January-February 2007. I intend investing another Rs 5 lakh soon. As on April 18, 2007 my portfolio is negative by 7 per cent. I would like your assistance in making my portfolio yield positive returns. Is it the right time to invest in mutual funds? Should I restrict my future investments to the current fund schemes or look at something else? How can I analyse and study mutual funds? And lastly, what should be an ideal asset allocation for my portfolio?
- SK Bakliwal

We will first begin with your last question i.e. asset allocation which is the foremost ingredient of any portfolio.

While a two to three year investment time horizon is the minimum that you should have for equity investments, our suggestion would be to add some amount of debt to your portfolio to insulate it from market spikes to an extent. For this you can invest in balanced funds which have equity exposure of about 65 per cent, while the remaining in debt instruments.

Fund Name  Allocation
DSPML Small And Mid Cap Inst-G 0.97
Franklin India Bluechip-G 1.47
HDFC Equity-G 24.74
HDFC Taxsaver-G 2.75
HDFC Top 200-G 20.44
HSBC India Opportunities-G 1.00
Kotak 30-G 1.01
Magnum Contra-G 14.23
Magnum Global-G 13.37
Reliance Vision-G 10.30
Sundaram BNP Select Midcap-G 9.73

As regards timing of investments is concerned, our advice is always to avoid market timing. And the best way to do this is by investing regularly at different time periods. In fact the reason why your portfolio is in red as of now is primarily because the equity market was trading in the 13400-14652 range during January - February 2007. And by the first week of March it dipped by more than 15 per cent. The learning for you would be to look at options such as Systematic Investment Plan (SIP) for future investments. This would effectively average out the acquisition cost of schemes.

The composition of your portfolio is impressive, with a good representation of well performing funds. Although your exposure to individual funds such as HDFC Equity (24.74 per cent) and HDFC Top 200 (20.44 per cent) is high. Instead of redeeming units from these schemes in order to reduce exposure to them, we suggest that future investments in these funds should not be made. Instead, pick a couple of good balanced funds for future investments.

For the purpose of analysing funds, you can look at data available in the scorecard of this magazine. Our star ratings will also be very useful; you can also refer to the Value 50 picks by our team which is published on a quarterly basis. For analysing the returns generated by your portfolio and the performance of individual schemes, you can use the portfolio tool on our website.

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