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Retirement Quandary

My investment portfolio consists of two technology funds bought during IPO and an income fund, which was also bought during an IPO. What should I do with my investment portfolio

I am in my late 70s. I have invested Rs 20,000 in Franklin Internet Opportunities, Rs 40,000 in Sun F&C Balanced and Rs 20,000 in Sun F&C Emerging Technologies, in the IPOs. I had also invested Rs 10 lakh in LIC Bond Fund during its IPO. What should I do with my investment portfolio?
Harkisan Agarwal, via e-mail


If your investment universe consists of just these funds, then you are doing okay. Around 92 per cent of your savings are parked in fixed income instruments, with the remaining in equity and balanced funds. The general rule of investing calls for reduction in allocation to stocks (and equity funds) as your age increases. And your portfolio reflects this.



A Debt-Oriented Portfolio
  Investment  Current  Annualised
   (Rs)  Value (Rs)  Return (%)
LIC Bond "10,00,000" "17,56,250" 13.82
Sun F&C Balanced "40,000" "36,160" -2.67
Franklin Internet Opport Fund "20,000" "12,420" -12.53
Sun F&C Emerging Technology "20,000" "6,580" -26.88
" As on September 12, 2003"


Among all your investments, LIC Bond Fund has generated the maximum return. It has lived up to its role of providing steady and consistent returns over time while preserving capital. This fund has delivered an annualised 13.82 per cent since launch in May 1999.

Unlike most income funds, LIC Bond Fund has traditionally invested more in bonds than in government securities. Within bonds, the fund took a high exposure (as compared to the category) to below AAA corporate bonds, which carry a slightly higher credit risk. At the same time, these instruments offer higher interest income. But in recent times, the fund's allocation to below AAA papers has come down, which is in line with its category. This high allocation to bonds has made the fund less volatile and has also translated into superior risk-adjusted returns. Nonetheless, it is advisable that you spread your investment across bond funds.

While the bond side of your portfolio is in perfect health, the same doesn't hold true for the equity component. Nearly 50 per cent of the equity allocation is in sector-specific funds, which explains why this part of your portfolio is bleeding. Of the two technology funds, Franklin Internet Opportunities is the better one. This fund has been able to guard its portfolio with non-IT holdings in sectors such as energy and finance. Sun F&C Emerging Tech, on the other hand, has invested in FMCG and pharma stocks, but these investments haven't managed to restrict its losses. Sun F&C Balanced Fund has posted an annualised loss of 3 per cent. This fund has been a laggard in both 2002 and 2000 and its year-to-date return of 27 per cent as on September 12, 2003, is less than the average peer's gain of 30 per cent.

The role of the equity component is to boost returns and to help combat inflation. This can, however, be best achieved through a diversified portfolio. In view of this, it would be advisable to re-orient the equity portion by making it more diversified.

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