I have invested in few mutual funds in recent months. Please review my portfolio and advise which funds should I hold and exit. I can stay invested for long term.
- Prasanna Kumar
· An aggressive portfolio with 12 funds and 12 stocks. Mid and small caps account for 52.5 per cent of the overall portfolio.
· 43.67 per cent of the portfolio is invested directly in equities with most of the stocks being of small and mid cap companies.
· The remaining portfolio consists of riskier funds which predominantly invest in small and mid cap exposure. Standard Chartered Premier Equity and DSPML Tax Saver are two such funds. The stocks portfolio too is dominated by small and mid cap picks like Tantia Construction, Asian Electronics and Rico Auto Industries.
· 8 of the 12 mutual funds have a portfolio allocation of less than 5 per cent. Such small holdings would add no value to the overall portfolio.
· When the stocks invested in directly and the stocks that the mutual funds invest in are clubbed, the overall portfolio gets spread over 744 stocks! And 160 of these stocks have a meagre allocation of less than 1 per cent.
· On the other hand, the portfolio has negligible exposure to debt (1.9 per cent). This increases the down side risk and makes the portfolio unstable.
· Though the portfolio consists of two sectoral funds (Tata Indo World Infrastructure Fund and DSPML Tiger Fund), it is overall well diversified across sectors.
· Now that we have a clear understanding of what the portfolio comprises, here are a few strategies that you, and every investor, need to keep in mind...
What Should Have Been Done
· An investor needs to have a significant component of debt in his portfolio. This depends on the individual's financial goals and risk appetite. A 10-15 per cent debt component can prove healthy for any portfolio as this helps provide the stability when markets are going through a rough patch.
· Avoid investing huge amount of sums in one go. Opt for an SIP in well diversified and rated funds. If you have lump sum money, spread investments over a period of at least 6 months.
· You have invested in just one five star rated fund and 33 per cent of your portfolio is invested in unrated funds. While creating a portfolio, you must be cautious while selecting the funds. Star ratings, performance over years and return generated versus the peers are some factors that you can consider. You must also see how the fund performs when markets tank.
· Assess your risk appetite before deciding on the equity debt allocation you want for your portfolio.
And now that you know what should have been done, here's what we suggest you should do now...
What Should Be Done Now
· Fix an amount which you can invest monthly and choose some funds from the suggested equity funds. Opt for diversified funds from the list and ensure that you do not invest in too many funds.
· Quality fund selection is very important. Redeem Funds which have proved to be laggards for a long time and have not been rated. Allocate this amount to a debt fund and then do a STP to an equity fund.
· Debt exposure is extremely essential for your portfolio. Select two funds from the list to invest in. Also look at investing in Arbitrage Funds. These offer returns at par with fixed income funds but are more tax efficient.
· Rebalancing the portfolio plays a vital role. Do not track your fund's portfolio every day. Check the equity-debt allocation and make changes if required. Do that just once a year or when markets rise or fall sharply.
Avoid direct stock investments. Investing in equities directly needs a lot of research - both fundamental and technical. If you do not have the expertise and time to do that yourself, let the mutual funds manager do it for you. Do not speculate with stocks just on the basis of price or brand name.
Equity Diversified Funds|| || Debt Funds|| || Arbitrage Funds
HDFC Equity|| ||Kotak Flexi Debt|| ||UTI SprEAD
Reliance Vision|| ||Birla Sun Life Income|| ||JM Arbitrage Advantage
Sundaram Select Focus|| ||ICICI Prudential Long Term|| ||Kotak Equity Arbitrage
Birla Frontline Equity|| ||Reliance Income|| ||SBI Arbitrage Opportunities
Kotak Opportunities|| ||Birla Income Plus|| ||JM Equity & Derivative