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How do I consolidate my portfolio of 30 funds?

Ashutosh Gupta suggests how to prune your fund portfolio to a more manageable number

How do I consolidate my portfolio of 30 funds?

I have about 30 equity funds in my portfolio and most of them have not been doing well for the last three-four years. How would I reduce the number and also how would I exit old funds and re-enter good funds? How would I time the market?
- Dr. Vikram Chaudhary

Well, he has quite a task at hand with 30 funds. That's a long list. Now, here are some of the steps he can follow to go about it in a more methodical way.

The first thing is to check how many funds he has with a very narrow investment mandate, for instance, funds like sector funds or thematic funds. Those could probably be the first ones that he can consider dropping out of his portfolio. Once he has done that, the next thing is to go after the fund holdings which have a very small allocation, say less than 5 per cent. If he cannot find a very compelling reason about why they should continue to be in his portfolio, it is better to drop them.

Look at it this way. Even if those funds turn blockbuster tomorrow, they will not have a meaningful impact on his returns because he has a very small allocation to them. So, the way to go about it is either increase the allocation to them or if there is no compelling reason to increase the allocation, then better exit from them. This way if he goes about pruning the list, he should be able to bring down the number of funds in his portfolio.

More broadly I would say that, while building a portfolio, one should be clear about which are the categories or the funds which are meant to be at the heart of the portfolio or what we call as the core of the portfolio. These are typically categories like (erstwhile) multi-cap, large and mid, value-oriented funds. For these kinds of funds, he can look to have an allocation of about 20-25 per cent in each of the holdings which he wants to hold. And then, there are certain supplementary holdings like mid-cap funds and small-cap funds, which could have anywhere between 10 and 15 allocations in the portfolio.

Once he follows this kind of practice, then it should be possible to build out a relatively more concise portfolio, where each fund has a meaningful position and yet the portfolio is diversified enough.

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