I'm an ex-service personnel and since February 2006 I have invested Rs 15,000-20,000 each in about 21 different schemes of various fund houses. As of now I will need funds for the impending marriage of my son and daughter. Could you suggest any means by which my portfolio can generate profit? What should I do incase the market turns bearish? Is it better to redeem in such cases or is it better to institute an systematic transfer plan (STP) in other schemes. Also I could not understand the star meter in the Portfolio Makeover section.
-Capt SC Sharma
To get an idea of the returns made by you, the BSE Sensex traded in the 9,700 - 10,600 band during February 2006. As of now the Sensex is trading above 15,000. So you would have definitely broken even on your investments and many would have yielded impressive returns in the short span of a year. Although, we always recommend investors with a large equity exposure to remain invested for a longer term (of at least three years), but since you need funds urgently, redemption is the only option. On a more positive note, you can use this as an opportune time to trim your portfolio and rationalise your holdings.
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As you can see we have reduced your portfolio to 10 funds from an earlier high of 21. In doing so we have liquidated more than 50 per cent of your portfolio. We have also increased the allocation to large cap companies. In case you anticipate a need for these funds in the near future; we would advise you to start moving your equity investments towards debt funds in a phased manner. You could institute a systematic withdrawal plan (SWP) for this purpose. This will effectively insulate you from the volatility of the equity market. As to your question on optimum strategies in a bearish market, our advice is not to panic. Time spent in the equity market is more important than timing the market. Hence the best way to ride out a bear phase is to sit through it and wait for the cycle to turn.
A systematic transfer plan (STP) is generally used to transfer a predetermined amount of money from a debt fund to an equity fund at periodic intervals. This is usually done by investors who have a large lump sum and do not want to commit to the market in one go. The STP mechanism can also be used by you in case you want to move funds from an equity fund to a debt fund.
This is not a common practice but it is possible if you want to systematically rebalance your portfolio and reduce your equity allocation. On a different note, the star meter in the portfolio makeover section gives the allocation to different star rated funds. In your case 32.36 per cent of your revised portfolio is invested in 5-star rated funds.
This article was originally published on July 17, 2007.
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