I am 38. Below is my portfolio. I have surplus cash of around Rs 50,000 which I plan to invest in Reliance Growth through SIP route and stay invested for more than three years. Is it advisable to invest in one of the existing funds or should I instead go for a new fund?
- Raghu
At Value Research we do not advise investors to park their money in equity funds for short term. Ideally, you should invest in equity funds for a longer term - at least five years.
Although the funds that you have chosen are of good quality, there is a flaw in your allocation to these funds.
Currently, your portfolio has an exposure of around 60 per cent to mid-cap funds - Reliance Growth, Sundaram BNP Paribas Select Midcap and Franklin India Prima. If you choose to invest an additional Rs 50,000 in Reliance Growth, you will increase your exposure to mid-cap funds even further. These mid-cap funds may push the returns from your portfolio up in a rising market, but they will also fall harder during a downturn.
On the other hand, large-cap funds like DSPBR Top 100 Equity and BSL Frontline Equity may not give chart-topping returns in rising markets but they will provide downside protection when markets tumble.
Therefore, a conservative investor should make up the core of his portfolio with large or multi-cap funds that provide stable returns over the long run.
For a less volatile portfolio, do not have more than 20 per cent exposure to mid-cap funds. Hence, reduce your exposure to mid-cap funds to this level and invest your proceeds in the large-cap funds that you have in your portfolio.
This article was originally published on August 04, 2010.
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