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Be Regular and Disciplined

Arpita Das is a 27-year old newbie to fund investments. She asks us to review her portfolio & give suggestions

I am a 27-year old salaried woman with an average risk appetite. I started investing in mutual funds in Jan 2008 and would continue to do so. Right now, I invest Rs 2,000 in HDFC Equity - G and Reliance Growth - G each (via SIP) p.m. I would like to invest Rs. 50,000 in a MF and start another SIP of Rs. 2,000 in SBI Magnum Contra. Kindly review my fund selection and suggest changes, if any?

-Arpita Das


Congratulations Arpita, you have started well. You have done the two things that all mutual fund investors should ideally do: opt for top-rated funds and invest via SIP. Both HDFC Equity and Reliance Growth are funds with proven track records and investing in them is a wise decision.

The another important factor of fund investments that you have taken care of is the SIP route. This is the most prudent form of investment, especially in unpredictable market conditions. And here's why. If you would review your investment today, then you would find that the market value of your initial investment of Rs. 28,000 (total SIP till July) is Rs. 24,294 (as on 26th July, 2008). The fall in the market value of your investments is due to the fall in the NAV of your funds. However, your fall has been lessened thanks to the SIP route of investing. Had you invested in lump sum, then you current market value would have been Rs. 18,375, down by 21.14 per cent more. Owing to the SIP route, the erosion in the value of investments has been minimized.

Coming to your portfolio capitalization, around 50 per cent of your portfolio is made up of mid- and small-cap stocks, which makes your portfolio a bit risky in the current market scenario. The good thing is that there is no prominent sector bias in your fund portfolio. The largest allocation stands at 13.96 per cent to the healthcare sector, which is good as in the recent times, this sector has fallen by just 6 per cent, which is a lot less than the Sensex's 34 per cent fall.

Now, about your future investments… we suggest you to go ahead and start a new SIP of Rs. 2,000 in SBI Magnum Contra. As for your additional investment of Rs. 50,000, we suggest you spread this amount among your existing funds and Magnum Contra. Allocate Rs. 20,000 in Magnum Contra and Rs. 15,000 each in HDFC Equity and Reliance Growth. Ideally, even this investment should be carried out in a staggered manner rather than investing in lump sum. But to make matters simple, we are suggesting you to go ahead with a lump sum investment.

After incorporating your additional investments, your portfolio will have a weightage of around 47 per cent in mid and small cap stocks. The sectoral allocation remains more or less same with higher allocation in Healthcare (11.17 per cent), followed by Energy (10.45 per cent) and Financial Services (9.98 per cent).

Considering your age and the investment horizon, we suggest a larger allocation to equity. Review the performance of your funds every year and replace the funds which are underperforming. As you come closer to your financial goal, gradually reduce your equity allocation with a defined fixed income allocation. It would be ideal if even now you could start allocating 10 per cent of your savings to any fixed income instruments like bank recurring deposits.

For any prudent investor, the most important thing to do is to be regular and disciplined and not be bothered about market ups and downs. Most people start to rethink about their investment after every market fall, and many stop their investment in mutual funds only to return back when the markets rebounds. To illustrate the whole point of being regular and disciplined, we made a hypothetical investment of Rs. 6,000 every month for the past 5 years. And results are graphically shown below.

Now that you know the importance of SIP, you'll be happy that you opted for this investment route. Well, you're doing a good job with your investments and more of the same will help you achieve your financial goals. All the best!