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Diversify Across Styles

A well-diversified portfolio should have funds of varied scale & categories, managed by different people...

I am 40 and would like to invest Rs 20,000 every month for the next five years. I have already invested in HDFC Prudence and HDFC Top 200 where my total investment is about Rs 3 lakh. This money was invested some time back and I had to discontinue the same due to some financial emergency. Please guide me to allocate the same sum again. I feel I could look at the same schemes again.

— Biju Kurup

Diversification is a quality desired of a portfolio of equity funds. A well-diversified mutual fund portfolio should include funds of varied scale and categories managed by different managers. Both HDFC Prudence and HDFC Top 200 are good funds in their respective categories but managed by the same fund manager. As on December 31, 2012, there was a 42 per cent investment overlap between the portfolios of both these funds. However, the fund manager attributes the similarity in stocks as inevitable but argues that the allocation matters more than mere similarities of stocks in the respective portfolios.

A balanced fund in your portfolio is a good anchor for a 5-year window. These funds typically have 70:30 allocation to equity and debt, are tax efficient and automatically rebalance the equity-debt ratio. You can select any other large- and mid-cap fund from the Fund Select feature on our website instead of HDFC Top 200 for variety or continue investing in the same. Make sure you periodically track the performance of your investment, review and analyse their performance and make any changes to the selected funds.



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