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Owning too many funds not beneficial

1 am 42 years old and work

1 am 42 years old and work in the Army with an annual income of Rs 12 lakh.

My goals are as follows:
Pay Rs 8 lakh (in three years) towards house registration and other costs.
Build a corpus of Rs 3-4 crore for retirement (15 years from now).
Provide for the higher education expenses of my sons.

I desire an asset allocation of 55:45 (debt:equity). I have four insurance policies (pension plans and endowment plans) with total sum assured of Rs 61.12 lakh and have made investments of Rs 17 lakh in Public Provident Fund (PPF). Kindly suggest improvements to my portfolio. -Srinivas Ganapathi

I have been doing systematic transfer plan (STP) of a total of Rs 10,000 every month from these debt funds to equity funds. These STPs will end in December 2011.

Debt   Equity   
DSPBR Liquidity Reg DSPBR Opportunities 
Templeton Floating Rate ST Ret Franklin India Bluechip 
HDFC Floating Rate Income ST Ret HDFC Top 200  
HSBC Floating Rate LT Reg HSBC Equity 
Sundaram BNP Paribas Money Sundaram BNP Paribas Growth 
 Sundaram BNP Paribas Select Midcap Reg 
  HDFC Equity 

Portfolio   Allocation (%)
Mutual Funds  
Sundaram BNP P Sel Midcap Reg 7.01
Templeton India Pension 6.85
Kotak Flexi Debt Regular 6.45
HDFC Equity 6.33
UTI Mastershare 6.2
HDFC Top 200 5.94
DSPBR Opportunities 5.71
Franklin India Bluechip 4.76
HDFC Taxsaver 3.94
HSBC Equity 3.52
HDFC LT Advantage 2.75
Sundaram BNP P Growth Reg 1.62
HDFC Cash Mgmt Savings 1.53
Templeton Floating Rate ST Ret 1.08
Sundaram BNP P Money 0.93
HDFC Floating Rate Income ST Ret 0.91
DSPBR T.I.G.E.R. Reg 0.57
HSBC Floating Rate LT Reg 0.5
DSPBR Equity 0.46
DSPBR Top 100 Eqt Reg 0.45
DSPBR Liquidity Reg 0.4
Oil India 23.9
HPCL 2.27
Rural Electrification 2.15
NMDC 1.85
BHEL 1.02
Blue Star 0.54
Page Industries 0.36

I invest a total of Rs 23,500 monthly in the following mutual funds.

Funds (SIP date)  Amount (Rs)
DSPBR Opp (01st,07th ,21st ) 4,000
Franklin India Bluechip (7th) 1,000
HDFC Equity (01st, 5th, 20th) 5,500
HDFC LT Advantage (5th) 1,000
HDFC Tax Saver (5th) 1,000
HDFC Top 200 (01st,5th,20th) 4,500
HSBC Equity (3rd) 1,000
Sundaram BNP P Sel Midcap 
(01st,7th,20th) 4,000
Templeton India Pension (7th) 1,000
Kotak Flexi Debt (7th) 1,500

Strengths and weaknesses of your portfolio
Your portfolio consists of around 68 per cent in mutual fund holdings and rest in shares. Overall your portfolio has around 77 per cent equity allocation and approximately 19 per cent debt exposure. However, if we take into account PPF, your overall debt allocation increases substantially to around 42 per cent.

You have desired a 55:45 debt: equity ratio. Right now as you have time (15 years) to build your retirement corpus it would be wise if you keep at least 70 per cent in equities and the rest in debt. Though equities are riskier than fixed-income securities, they provide higher returns in the long run and help to accumulate wealth over the years. As you get closer to your goals, gradually transfer money from equities to debt. At that time safety of capital should be your prime concern.

Your overall portfolio has a healthy mid and small-cap exposure (around 25 per cent). Large-cap exposure constitutes 74 per cent. Continue to maintain this exposure.

Your mutual funds portfolio has a total of 21 funds. Besides the problem associated with handling and tracking so many funds, you have added more complexity to your portfolio by investing on different dates in a month. This unnecessarily increases your workload.

In our view, it would be better to keep fewer funds. They will give the same diversification and also make your portfolio simpler and easier to handle.

As a result of having too many funds, no fund or stock has any significant allocation in your portfolio (barring one stock - Oil India). Of all, 16 funds and six stocks have less than 5 per cent allocation in the entire portfolio. The consequence of having such small allocation is that if any fund or stock displays great performance, it will have a negligible impact on your overall portfolio.

Further, we have noticed that you have made a few lump sum investments in some funds, which should have been avoided. Follow the SIP route as it is the ideal mode of investment in mutual funds, particularly in equity funds, as it averages out your cost of investment due to stock market volatility.

Moreover, in addition to funds, you have seven stocks that would require even more attention than funds. Investing in shares requires good knowledge about industry trends and the company's past performance. We assume that you have the time and the expertise to research and keep track of your stocks. The stocks in your portfolio are good.

However, your total portfolio has a major tilt towards the energy sector mainly because you have huge exposure (24 per cent) to Oil India's stock.

You have four insurance policies; none of them is a term plan. Our advice is that you should buy a term plan. It is the cheapest and the best form of insurance. Your life cover should be of the amount that can sufficiently take care of your future goals and pay off your liabilities in case of your sudden demise.

It's good that you have defined your goals well but the information that you have not provided is the amount that you will require for your sons' education.

You wish to accumulate a retirement corpus of Rs 3-4 crore. You can comfortably accumulate this amount in 15 years while fulfilling your need of Rs 8 lakh for the registration of your house at the end of 2012.

We are making the above statement based on these assumptions:
1.Once your STPs end in 2012, you continue to invest through SIP Rs 23,500 and increase this amount at the rate of 10 per cent every year till the time you retire.
2.We have assumed that your equity investments earn an annual return of 10 per cent.

So, your monthly investment and accumulated investments (mutual funds, stocks and PPF) will enable you to fulfil your retirement and house goals. But for your children, we suggest you first quantify the amount that you will require and then start investing additionally for them too.

(In our calculations we have not included insurance policies.)

Portfolio restructuring
We have picked 10 quality funds that you should keep in your portfolio. Offload the rest of the funds and invest the proceeds systematically in the suggested funds. Continue with your SIP of Rs 23,500 but spread it among six funds as suggested below. Take your pick but while choosing funds keep in mind that you diversify your portfolio across fund houses. From the suggested core funds, choose the tax saving fund if you need to exhaust your Section 80C limit of Rs 1 lakh.

Suggested Portfolio
Core Funds (70%)
Multi Cap
DSPBR Equity, HDFC Equity
Large-Cap/Large-Cap& Mid-Cap
Franklin India Bluechip, DSPBR Top 100 Equity, HDFC Top 200
Tax Planning
HDFC Tax Saver
Supporting Fund (10%-15%)
Sundaram BNP Paribas Select Midcap
Debt Fund (10%-15%)
Kotak Flexi Debt