Core & Satellite Approach

I started investing Rs 2,000 every month in HDFC Prudence, Franklin India Bluechip, Fidelity Equity, ICICI Pru Dynamic, HDFC Equity and IDFC Premier Equity. I have additional Rs 4,500 month to invest. Should I increase my allocation to funds or invest in fixed income instruments? I also pay Rs 24,000 a year towards life insurance as premium.
- R V Shah

Schemes    Category    Rating    3-yrs ret (%)    5-yrs ret (%) HDFC Prudence   Hybrid: Equity-oriented   *****   17.86   17.7 Franklin India Bluechip   Large Cap   *****   11.88   13.57 Fidelity Equity   Large & Mid Cap   *****   12.5   15.04 ICICI Pru Dynamic   Multi Cap   ****   12.41   14 HDFC Equity   Multi Cap   *****   18.11   17.17 IDFC Premier Equity   Mid & Small Cap   *****   15.04   20.2 Returns as on April 26, 2011 Ratings as on March 31, 2011

You have selected good funds and all of them are rated highly by us. While your portfolio has the necessary diversification across the category of funds; the equal allocation across six funds can be changed to make a more meaningful investment portfolio. You should build a portfolio of core and satellite funds with the core comprising large- and large- and mid-cap funds accounting for up to 80 per cent allocation. The balance 20 per cent can form the satellite component of your portfolio comprising multi cap and small- and mid-cap funds. By increasing the additional Rs 4,500 that you have into Fidelity Equity and Franklin India Bluechip funds you can re-orient your portfolio allocation and consider future incremental investments in this category of funds.

If you are looking for long-term investments, you can skip investing in fixed return instruments at this stage. And do remember that insurance is risk protection first and everything else later. If the premium that you are paying is not just for risk protection; you need to evaluate your insurance needs.

This article was originally published on April 27, 2011.