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Be Wary Of Overlaps

Without focus, a mutual fund portfolio can have overlaps that add nothing substantial to it…

I am 32 years old with an income of Rs 60,000 a month and can take moderate risk. Currently I have SIPs in Fidelity Equity, Fidelity India Growth, HDFC Equity, HDFC Top 200, HDFC Mid-Cap Opportunities, HDFC Prudence, Reliance Banking Retail, Sundaram Select Midcap, ICICI Focused Bluechip Equity. Should I continue to invest in all the funds or any suggestions to revise the portfolio?
- Malladi Kiran

Schemes  Category  Rating  3-yrs ret (%)  5-yrs ret (%)
Fidelity Equity Large & Mid Cap ***** 20.17 19.14
Fidelity India Growth Large & Mid Cap **** 20.09 NA
HDFC Equity Multi Cap ***** 25.76 20.37
HDFC Mid-Cap Opportunities Mid & Small Cap **** 26.24 NA
HDFC Prudence Hybrid: Equity-oriented ***** 25.25 20.00
HDFC Top 200 Large & Mid Cap ***** 22.94 20.46
ICICI Focused Bluechip Equity Large Cap ***** 22.95 NA
Reliance Banking Retail Equity: Banking Not Rated 34.69 33.02
Sundaram Select Midcap Mid & Small Cap **** 21.84 16.24
Returns as on July 07, 2011 Ratings as on June 30, 2011

For a 32-year old, your haste in investing is seen with a portfolio of nine funds across market capitalisation and style. Result: despite some good funds, the portfolio lacks focus and has overlaps. Having three large- and mid-cap funds and two mid- and small-cap funds does not amount to diversity in style. Moreover, you have invested in a sector fund which is risky at one end and an equity-oriented hybrid fund which is conservative at the other.

You have age on your side and should follow the core and satellite approach for long-term wealth creation, wherein you have about 60-70 per cent of your holdings in large- and large- and mid-cap funds and the remaining in mid- and small-cap funds, multi cap funds and sector funds to form the satellite element of your portfolio. This way you will have a portfolio that is built on a strong foundation with a few funds in the satellite domain that provide the necessary kick to your portfolio returns.

Reduce your holdings to just four or five funds. Have a financial goal for which you are investing this sum and monitor the performance of these funds at least once a year and make modifications if needed.

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