I am 61 and retired. I invested in various mutual funds. My investment horizon is about five years. My aim is to derive approximately 20-25 per cent annual returns and then invest the lump sum in a fixed deposit or a monthly income plan. I would be grateful if you could review my portfolio and guide me with regard to fund selection and the need for consolidation.
- S.S. Moondra
Congratulations! Your fund selection is notable. In less than three years you have put together a portfolio of top-rated mutual funds.
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Your current portfolio consists of 18 funds, totaling to a corpus of Rs 6.3 lakh. This amount has grown to almost Rs 8.5 lakh (as on October 1, 2007). That's a return of 35 per cent over three years. A remarkable feat. But when we dug further, we found some holes in the portfolio.
Check the Number
While your fund selection has been excellent, you could have easily skipped a few funds. An intelligent portfolio is not one that just accumulates good funds. A higher number does not necessarily make for good diversification. Instead, it should have funds that work well together so that the portfolio as a whole performs impressively. In your case, a number of additional purchases could have been done in the existing funds rather than new ones. The number of funds is not as important as the essence and investment focus of each of them. Owning multi funds of the same theme will add little to your portfolio. For instance, funds like Fidelity Tax Advantage and Reliance Tax Saver could have been skipped. Ditto with others like DSPML Technology.com and Reliance Equity Opportunities.
Consolidate your portfolio by exiting from these funds and move to funds like Reliance Vision. You will not be able to sell your ELSS holdings right away as they have a three year lock-in period.
On the asset allocation front, you should increase your debt portion as that stands at just 8.6 per cent of the total holdings. Towards this end, a portion of your corpus can be channelised to DSPML Savings Plus Aggressive.
Be Disciplined
While you have been regularly investing in funds over the past three years, your investments do not appear to be consistent.
For example, on July 18 this year, you invested Rs 2.6 lakh in a day. You attempted to time the market and put in 41 per cent of your current portfolio in one single day. Your strategy backfired badly. During that period the stock market peaked at over 15,000 and tumbled heavily after a few days. You ended up losing a huge chunk of your initial investment amount in no time.
Since it is impossible to time the market, a smarter way to get into equities is by opting for a Systematic Investment Plan (SIP). In this way, you discipline yourself to make fixed investments at fixed time periods and ignore the market gyrations.
Make Smart Moves
Since your investment horizon is only for five years, we suggest you keep a close watch on your portfolio. Gradually start shifting the corpus from equity to debt-related instruments a year before you require the money. For now, some amount of consolidation, opting for an SIP and increasing the debt component will make your portfolio less volatile and more balanced and simultaneously reduce the downside risk.
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This article was originally published on December 26, 2007.
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