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Avoid Excessive Diversification

Bring down the number of funds in you portfolio and invest regularly through SIPs

I am 35. My goal is to accumulate wealth for my retirement. I also want to plan for my children's education and their marriage. I have not determined the amounts required for all these goals. My investment time frame is 20 years. I also wish to buy a car in a year's time. Please take a look at my portfolio. Most of my investments in funds have been done in lump sum, not via SIPs.
- Sandeep Chaudhary

Where your mutual fund portfolio is concerned, we have listed the points where we felt you have erred. We have done so to give you an understanding on how to proceed in the future. We have also suggested a revamped portfolio. As far as your overall savings and investments are concerned, we have listed areas that you need to work upon.

You have a number of dependants - wife and children, parents too? In that case, you need a much higher life insurance cover. Opt for a term insurance cover; it's the cheapest and purest form of life insurance. You have not mentioned if your family's medical insurance needs are also covered by your organisation. If not, you will have to raise the medical cover as well.

There is no clarity regarding your goals, which include your retirement and your children's education and marriage. You need to put a time frame for these goals as well as determine the amount you would need those many years down the road. You said you would like to buy a car in a year's time, but how much would that cost you and do you plan to take a loan or make an outright payment?

Tax planning
Are you being smart in your tax planning? You said you are contributing towards the Public Provident Fund (PPF) but you may also be making a regular contribution towards the Employees Provident Fund (EPF). To add to it, you are paying a premium on your life insurance policies as well as servicing a home loan. Hence, we assume that you pretty much exhaust the limit under Section 80C. However, we do find six equity linked savings schemes (ELSS) in your fund portfolio.

Regular savings
Your current SIPs are just 7 per cent of your income. Can you look at ways to increase this amount? For your long-term goals, equity is the best investment avenue, so ensure that the bulk of your savings are in equity mutual funds. And do so regularly via a systematic investment plan (SIP).

    Fund investing mistakes
  • You invested in 3 new fund offerings (NFOs) and 9 funds that were just a couple of months in existence. Stick to schemes with a track record.
  • Your portfolio is over diversified with 25 funds. As many as 19 have an exposure of less than 5 per cent in your portfolio, which is pretty pointless.
  • You have 5 thematic funds which account for 24.17 per cent of your fund holdings. Of these, 3 are infrastructure based. That is way too much clutter and a recipe for disaster to be so focussed on one theme.
  • You should not invest sporadically, as you have done in the past. Invest via a SIP which will force you to regularly put money aside.
  • A consolidated look at the portfolios of all your funds reveals that you have an exposure of 43 per cent to mid- and small-cap stocks. That is a little too risky.
  • You have no exposure to a debt fund. So the current exposure to debt amongst your funds is just 1.46 per cent of your total portfolio. No doubt you have fixed return investments, but we suggest a debt fund to help you rebalance your portfolio.

Fund portfolio restructuring suggestions
3 Core: These funds should account for at least 60 per cent of your portfolio. You currently have an SIP in Fidelity Equity which you can continue with. Consider IDFC Imperial Equity Plan A, DSPBR Top 100 Equity or Franklin India Bluechip.

1 Infrastructure: You do not need 3 infrastructure schemes in your portfolio. Since your SIP is with DSPBR T.I.G.E.R., stick to it.

1 Tax Saving: If you still need to invest in an ELSS to fulfil your Section 80C obligation, go with either one: Fidelity Tax Advantage, Sundaram BNP Paribas Taxsaver or HDFC Taxsaver.

1 Mid Cap: Sundaram BNP Paribas S.M.I.L.E. is a good bet.
1 Debt: For debt exposure, consider Fortis Flexi Debt (Reg) or Canara Robeco Income.

You invested in Kotak Opportunties, Kotak 30 and Reliance Equity Opportunities. These funds are fairly good performers. There is no need to offload them in a hurry unless you need the money.

The remaining funds in your portfolio can be sold. In the case of ELSS, ensure that you have completed the mandatory 3-year lock-in period. Where other equity schemes are concerned, ensure that you have stayed invested for at least a year. In the case of closed-end funds, you will have to wait till these funds turn open ended so that you avoid paying an exit load.

Current Portfolio  
Fixed Return Investments  Amount (Rs)
1-year Fixed Deposit Rs 50,000
Funds  Allocation (%)
Kotak Opportunities 15.97
Fidelity Equity 15.05
Sundaram BNP Paribas Taxsaver 10.4
DSPBR T.I.G.E.R. Reg 9.72
Tata Infrastructure 7.09
Principal Personal Tax Saver 5.28
Reliance Equity Opportunities 4.84
Magnum COMMA 3.57
HDFC Taxsaver 3.14
Fidelity Tax Advantage 2.56
L&T Midcap 2.54
Franklin India Flexi Cap 2.24
Reliance Natural Resources Retail 2.17
Reliance Tax Saver 1.96
Franklin India Opportunities 1.91
Sundaram BNP Paribas S.M.I.L.E. Reg 1.87
Kotak Indo World Infrastructure 1.62
Magnum Taxgain 1.16
Reliance Long Term Equity 1.11
SBI Bluechip 1.07
Kotak 30 1.05
HSBC Progressive Themes 0.96
ICICI Pru Eq & Der Wealth Optimiser Ret 0.96
BSL Top 100 0.94
Fidelity India Growth 0.83