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Avoid Risky Funds

A new investor shouldn’t have a portfolio comprising risky sector & mid- and small-cap funds…

I am planning to invest in HDFC Top 200, Fidelity Equity, Reliance Banking, Reliance Pharma, IDFC Premier Equity Plan A and DSPBR Small and Mid Cap for the next five years through SIPs. Please advice on the funds selected?
-Keith Katalia

For a new investor, you have short listed a mix of funds that are good and collectively form a portfolio which is risky, considering the allocation to sector funds and mid- and small-cap funds. As a beginner you should look at building a portfolio based on the core and satellite approach which will provide the necessary diversification as well as stability in your portfolio. With this approach you can achieve 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.

You can have 2-3 funds as core holdings comprising large-cap and large- and mid-cap funds, with the satellite component made of sector funds and mid- and small-cap funds to provide the necessary fillip to achieve long-term wealth appreciation. Moreover, the portfolio will be able to absorb shocks as well as have the potential to earn higher returns over various market cycles.

Investing through SIPs is a good way to start and you can consider DSPBR Top 100 a large-cap fund with Fidelity Equity to form the core of your portfolio; retain one of the mid- and small-cap fund and also one sector fund to form the satellite component. Continue investing regularly and track the performance of these funds at least once a year to assess the progress of the selected funds.

Schemes  Category  Rating  3-yrs ret (%)  5-yrs ret (%)
DSPBR Small and Mid Cap Mid & Small Cap **** 21.64 NA
Fidelity Equity Large & Mid Cap **** 18.12 19.32
HDFC Equity Multi Cap ***** 24.15 20.73
IDFC Premier Equity Plan A Mid & Small Cap ***** 19.93 27.46
Reliance Banking Equity: Banking Not Rated 32.65 32.62
Reliance Pharma Equity: Pharma Not Rated 36.66 30.46
Return as on May 28, 2011,Ranking as on May 31, 2011

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