I am 39 years old and investing Rs23, 500 per month in ten schemes through Systematic Investment Plan(SIP). Beyond this I also invest Rs60000 per annum in PPF. I am looking at this investment from long term perspective. My intension is to increase the size of investment by 10 per cent every year and reach the size of the portfolio of Rs 1 crore by 2017 and Rs 4 crore by 2027. Let me know if the size and the composition of current portfolio will eventually lead towards this financial goal. - Indrani Sharma
The first thing that catches the eye in your portfolio is your choice of funds. Most of the funds in your portfolio have good track record, which shows your thoughtful approach to investing. We also liked your approach to investing through Systematic Investment Plan (SIP).
Now let's look at some calculations we did for you, considering your intension of increasing the monthly SIP amount by 10 per cent every year. You started investing since April 2007. Currently your monthly SIP is Rs 23,500 per month. We kept on increasing the SIP amount by 10 per cent every year and calculated the return compounding annually at the rate of 10 per cent for the next 10 years ending December 2017. The corpus at the end of the 10th year stood at Rs 82 Lakhs. Going ahead, the similar increase of 10 per cent annually in the monthly SIPs further, in the next 10 years, ending December 2027, generated a corpus of Rs 4.15 crore.
Now that you know that the magic of compounding and rupee cost averaging can prove very useful over the long-term The only requirement is to be disciplined and patient approach through difficult times.
Here are suggestion to fine-tune you approach further:
First off, you should cut down the number of funds in your portfolio. Though most of the funds are of good quality, but as it is said that excess of every thing is bad, similarly, too many funds lead to over diversification. For instance, currently your mutual fund portfolio break-up shows 227 stocks, only 11.5 per cent of which have allocation above one per cent.
Secondly, funds like Tata Infrastructure Fund and JM Financial Services Sector Fund are topping the portfolio list in terms of their percentage holding. It is always advisable to have minimum exposure in sector or theme based funds because the performance of these funds entirely depends upon the performance of the associated sector. When the sector performs well, the fund performance goes up and when the sector performance hits the fund's performance also heads downward.
The high allocation in JM Financial Services Sector Fund has led the Financial Sector sitting at the top of the sector allocation break-up. A high allocation of 33 per cent age in the sector makes the portfolio very risky. Moreover, when you have such a good quality portfolio, how did this fund manage to have a prominent holding? The equity banking category in 2008 till now (October 20, 2008) is down by 46.19 per cent and the fund is down 56.51 per cent, thus becoming the worst performing fund in its category. So it is advisable to pick a better fund from the category if you are banking upon the sector.
Thirdly, out of the ten funds you have invested in, three of them are large cap oriented, but only accounts for 24 per cent of the total investment. This, in turn, has resulted in low large cap allocation in your portfolio making its performance risky. Thus it is advisable to increase the investment in large cap fund to expand the large cap allocation. This makes the portfolio more concentrated.
Lastly, the portfolio lacks adequate debt exposure. Hence it is advisable to increase the debt exposure to 10 -15 per cent. You can do the same by investing in debt fund with good track record. Various categories of debt funds are available out of which some recommendations for you include Kotak Flexi Debt Fund, Birla Sun Life MIP II Savings 5 and DBS Chola MIP and you can choose any of them according to your suitability.
With the combination of your careful and wise approach and our basic principles, you can easily achieve your objective. Don't panic or disappoint in the current market fall as equity investment is meant for long term. Keep investing systematically and rebalance your portfolio once in every six months .We wish you all the best.