I have invested in mutual funds through monthly SIPs of Rs 41,000. Due to the present market turmoil and my inability to stay invested, I would be reducing my investments by half. Can you please advise me as to which funds I must remain invested in? Can you also suggest a model portfolio?
-Akash Pindi
How to build a great portfolio
We have looked at your portfolio and come up with suggestions on how you can tweak it to make it work better for you.
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You want to know which funds you should stay invested in. Looking at the current state of the market, our immediate reaction is to tell you not to offload your holdings at this point in time. You will lose heavily if you do so. Investors with a long-term objective should not pull out of the market simply because it has fallen.
Number of funds
You have 12 funds right now. You do not need that many. A good portfolio need not be unnecessarily diversified. If you have to sell, though we do not suggest it in such a market, you can consider getting rid of Morgan Stanley A.C.E Fund, Reliance Diversified Power Sector Fund, DSPBR World Gold Fund, Reliance Vision, Magnum Global Fund, Sundaram BNP Paribas CAPEX Fund and Kotak Opportunities Fund.
Opting for a SIP
It is wise that you are continuing with your SIP. But, if you are halving your monthly investment from Rs 41,000 to Rs 20,000, then we suggest that you stick to around 4 or 5 funds.
Market cap exposure
Your portfolio is currently tilted towards mid- and small-caps. We suggest that you increase your large cap exposure. You can raise your allocation to funds like DSPBR Top 100 and HDFC Top 200.
Asset allocation
Your debt exposure is negligible. You must have a debt fund in your portfolio. This will help in curtailing the downturn in the equity market. Kotak Flexi Debt can be a good choice.
Sector bias
Your portfolio is driven by thematic/sector funds which constitute 47 per cent of your fund holdings. The highest allocation (12.71%) is in Reliance Diversified Power Sector. There are three funds with a focus on the infrastructure theme: Tata Infrastructure, DSPBR T.I.G.E.R and Sundaram BNP Paribas Capex Opportunities. Do not have a high allocation to sector or thematic funds. Where the infrastructure funds are concerned, we suggest you stick to just one: Tata Infrastructure or DSPBR T.I.G.E.R.
Type of funds
You do have a good quality portfolio since 8 of your funds (out of 12) are either 5- or 4-star rated. But like we stated earlier, you do not need that many funds in your portfolio.
New funds
Avoid new funds. For instance, you have purchased Morgan Stanley A.C.E Fund and DSPBR World Gold Fund. Do you really want an exposure to gold? Did you consider a gold exchange traded fund? Are you aware of the risks of gold stocks?
Rebalance
Invest systematically and rebalance your portfolio once a year to ensure your equity: debt allocation is intact.
This article was originally published on February 25, 2009.
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