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Biased Allocation

Your portfolio is tilted towards mid- and small-cap which could be risky

I am a 30 year old IT professional. About a month back I invested in HDFC Top 200, IDFC Premier Equity -A, ICICI Prudential Discovery Fund (G) and DSPBR Small and MidCap Fund in SIP mode with 2000 each. Are these funds are the right choice for long term of 15-20 years. Please advise.
- Priyanka Mishra




Scheme Name  Category  Rating  3-year (%)  5-year (%)
HDFC Top 200 Large & Mid Cap ***** 7.84 21.28
IDFC Premier Equity Plan A Mid & Small Cap ***** 5.04 25.64
ICICI Prudential Discovery Mid & Small Cap ***** 10.69 17.73
DSPBR Small and Midcap Mid & Small Cap **** 4.09 -
Data as on January 11, 2011

You have made a good selection of funds that are highly rated by us. These funds have performed consistently and have a good track record over the years. For a 15-20 year time frame investing through SIPs is the best way forward and you have got the right start. There is however some overlap in the kind of funds in your portfolio. Three out of the four funds that you have carry a mid- and small-cap tilt making the overall portfolio aggressive and mid-cap heavy.

This is not a bad move as long as you are aware of the risk-return profile of this category of funds. As a long-term investor, you will be better with a portfolio that has core and satellite fund allocation which will have stability and the vigour to boost your overall portfolio returns. The core portfolio should comprise of funds that are not prone to violent swings such as large-cap funds, index funds and large- and mid-cap funds. These categories of funds are not present in your current portfolio. You can consider including large-cap funds into your portfolio to bring stability in your portfolio and consider Franklin India Bluechip, ICICI Prudential Growth or IDFC Imperial Equity Plan A from the large-cap fund category.

Do make it a point to review your investments at least once a year to incorporate any changes that you may need to because a fund that is highly rated today, may not be so forever.



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