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Problem of Inconsistency

Investing is not a one-time event. For long-term wealth creation, you need to review your portfolio at regular intervals

I am 43 and have investments in stocks and funds, details of which I am sharing with you. I also have Rs 5 lakh in bank deposits, and make annual investments of Rs 60,000 in Ulips. I have no outstanding loans and live in my own house. My wife works and her investments are not clubbed with mine. We have a son who is 15. I want to know if my portfolio is good and how I can improve it. I plan to work till I retire for which I have another 17 years to go.
-Rathnesh Rao

Cover Your Base
You have insurance in the form of Ulips which are a mix of insurance and investments and do not do enough justice to your protection needs. Though you do not have any dependant other than your son, who can be financially taken care of if something happens to you by your wife's income, we still suggest you take a term life cover. This is the cheapest form of insurance that covers against death. A good starting point will be to take a cover that is ten times your annual expenses. This way, in case of any eventuality, your dependants will get the money that should take care of ten years of their expenses.

There are no short cuts in life. Successful investing results from careful analysis and hard work; there is no simple solution. Though you do not come across as a risk-averse investor, your investment pattern reflects someone who is inconsistent. You have investments in most of the financial assets. Your portfolio would have done a lot better than the 13.5 per cent annualised returns that it has managed over the years, if you were active with your investments and tracked them. You definitely need to beef up your life and health insurance needs in adequate measure to meet your requirements.

Jump start
You need to realise the opportunity cost of not having been a part of the two stock market rallies in the past decade despite being invested through the decade. It's not too late for you to bring discipline into your investments. The lesson for you is that investing works well if it is systematic and regular and not a one-time exercise. You do have enough investible surplus that instead of resting in the bank could be invested in a systematic investment plan that would take advantage of the market cycles and help in creating a good corpus for you over the long term.

Portfolio review
Collectively your portfolio comprises 198 stocks, including the stocks in your fund holdings. Though well diversified, it is heavy on the energy sector. You do not have a planned portfolio comprising core funds, especially large-cap funds and blue chip stocks, which give the necessary stability and strength to your portfolio irrespective of the direction the market takes. IPO investments work well if there is long-term value in the investments, else they should be exited on listing gains. Likewise NFOs in your portfolio work well if they meet the portfolio needs that are missing otherwise.

Makeover
You should move out of non performing funds such as AIG Infrastructure and Economic Reform and Franklin Infotech. Try creating a core portfolio holding with large-cap funds such as DSPBR Top 100 Equity, which you have. Consolidate the portfolio further with better rated large- and mid-cap funds such as HDFC Top 200 or Birla Sun Life Frontline Equity Plan A. Build a satellite portfolio comprising mid-and small-cap funds such as Birla Sun Life Dividend Yield Plus or DSPBR Micro Cap and other sector funds with compelling rationale.

Your stock portfolio has some good stocks, but it also has some duds. It is time you think of exiting Tanla Solution, Sobha Developers and DLF. The loss that you have had in these investments should be a lesson to be active with investments and have an objective with which an investment is made. And do take stock of your Ulips. If they are faring poorly and the lock-in period is over, exit them as well. And for better realisation of bank deposits, it may be a good idea if you park them in liquid funds, which are not only tax efficient but better performers in comparison to bank deposit returns. Finally, have a financial goal, invest regularly towards it, track investment performance and review it once every six months.

CASE ANALYSIS
- Your mutual fund portfolio includes many NFOs. Though not bad, these should be bought only if there is a compelling reason for having them in your portfolio.
- Having too many funds that replicate each other's investment objective does not amount to diversification. Build a core portfolio. Only then diversify into new themes and sectors.
- For a portfolio to perform, you must review performance periodically. In case of stocks, you need to be active in buying and selling them.
- Your stock portfolio has IPO investments which work well if you exit them on time. An invest-and-forget strategy does not work for all kinds of stocks.
- Invest regularly. The opportunity cost of being irregular is immense.