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Build a portfolio with mutual funds that have a good performance history & track record…

I have mutual fund investments in four schemes, please review and let know which one I should exit and which ones I should re-invest in. -
Jayroop



Schemes  Category  Rating  3-yrs ret (%)  5-yrs ret (%)
Reliance Equity Opportunities Multi Cap **** 15.76 13.46
Fidelity India Special Situations Multi Cap **** 8.95 NA
DSPBR Focus 25 Large & Mid Cap Not Rated NA NA
BNP Paribas Midcap Mid & Small Cap ** -3.31 NA
Returns as on April 18, 2011 Ratings as on March 31, 2011

Investing in diversified equity funds is the ideal way to accumulate wealth over time and you have made a start. However, your approach in selecting funds to form a portfolio lacks focus and strategy. For instance you have two multi cap funds in the portfolio, a large- and mid-cap fund and a mid- and small-cap fund, which does not provide the desired diversification which will also offer stability to the portfolio returns, which can be seen from the fund performance. Moreover, three of the funds that you have invested in are less than five years old with one of them being less than a year old. One of the factors governing fund selection is performance history and track record, which seems amiss in your selection denting the portfolio returns.

Ideally you should adopt the core and satellite approach to build a portfolio which will give your mutual fund portfolio the necessary stability and growth for long-term wealth creation. You should consider investing 70-80% in the core funds and the remaining in the satellite funds. This way the core will take care of stability and the satellite helps your portfolio earn the necessary push to improve the performance of the overall portfolio.

You can have 2-3 funds as core holdings comprising large-cap and large- and mid-cap funds such as DSPBR Top 100 Equity, Franklin India Bluechip and HDFC Top 200, with the satellite component with sector funds and multi-cap funds to achieve long-term wealth appreciation. You can retain both the multi cap funds that you have and exit BNP Paribas Future Leaders fund which is renamed BNP Paribas Midcap Fund. Your selection of DSPBR Focus 25, a new fund that is less than a year and you can draw a lesson from this investment; NFO investment should be considered only when the offer throws up an interesting idea or theme which is missing from your overall portfolio. This is a large- and mid-cap fund, which is not a new idea and there are several funds in this category that exist and have a better performance history and track record to consider over a new offering. Lastly, be regular with your investments through SIPs and evaluate the performance of your fund portfolio at least once a year to make any course correction.



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