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Invest a major part of your portfolio in diversified funds to achieve stable long-term growth…

I have SIP of Rs 1,000 in five funds which I started 4-10 months ago. My investment horizon is for 20 years. Are these five funds good enough for long term? I have plans to invest additional Rs 3,000 a month, should I put the money in existing fund or a new fund? Please suggest.
- Sanil

You have selected some good funds. However, there are a few issues with your portfolio. The portfolio lacks diversification; there are two mid- and small-cap funds, a pharma fund and gold ETF. What you need is diversification in style and not just numbers. You should build a portfolio that is based on a core and satellite approach. This approach will provide the necessary stability and growth for long-term wealth creation. Ideally, you should look at investing 70-80 per cent in core funds and the remaining in satellite funds.



Schemes  Category  Rating  3-yrs ret (%)  5-yrs ret (%)
DSPBR Top 100 Equity Large Cap ***** 13.56 15.47
DSPBR Small and Mid Cap Mid & Small Cap ***** 18.36 NA
ICICI Pru Discovery Mid & Small Cap ***** 24.01 13.37
Reliance Pharma Pharma Not Rated 35.25 21.21
Reliance Gold ETF Gold Not Rated 19.66 NA
Returns as on April 6, 2011 Ratings as on March 31, 2011

You can have 2-3 funds as core holdings comprising large-cap and large- and mid-cap funds. In DSPBR Top 100 Equity you have a good large-cap fund, consider HDFC Top 200 or Fidelity India Growth, which are large- and mid-cap funds to form the core of your portfolio.

The satellite component of your portfolio is performing well, but you can think of adding a multi-cap fund in the future such as HDFC Equity or Quantum Long Term Equity. This way, the investments have the ability to absorb shocks as well as have the potential to earn higher returns over various market cycles in the long run. But do make sure to track the performance of the funds that you have selected as a fund that is good today, need not necessarily be a good performing fund six months later. By regularly reviewing your funds, you can make alterations to the selected funds if need be.



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