Ten months ago I invested in HDFC Income, Birla Income Plus, HDFC High Interest (then Zurich High Interest), PNB Debt, Templeton India Income, and Cancigo. The returns from these funds range from around 10.5 per cent to 11.9 per cent. Now, I plan to realign my portfolio by exiting completely from HDFC High Interest (since this fund conflicts with a product that HDFC has), exit from PNB Debt as—despite its high returns-it is too volatile; and make fresh investments in Principal Income, JM Income-G, Sundaram Bond Saver, K Bond Wholesale, and Grindlays Super Saver Income. I have made these choices based on a study of maturity profile, standard deviation, risk/return grade and other relevant factors. I have earmarked 30 per cent of my Rs 5-lakh portfolio for medium-term debt funds. Would you suggest any changes to the fund selection?
Venkat
It's good to see an investor studying funds so closely. However, we do think that it is easy to have too many debt funds in a portfolio. In some ways, debt funds are close to being commodities. The better debt funds are very much like each other, and having too many of them will add little to your portfolio besides making it more complex to manage. With the long-running fixed income rally definitely in its last lap now, there will be even less of a difference between such funds.
You have assembled a portfolio almost completely made up of large stable funds with strong track record. You are right about PNB Debt's volatility—with at least 78.17 per cent of its portfolio in government paper for the last one year—this is actually a gilt fund in a debt fund's clothing. When the markets reverse, this fund could become a source of sorrow for you. JM Income is one of the more aggressive funds in your list and you could bring it on board to provide a kicker to your returns. With bonds slowing down equities could provide a better kicker to your portfolio.
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In fact you already have some equity exposure through Cancigo. This hybrid fund can invest up to 10 per cent of its portfolio in equity. Though of course, if you are looking for such a fund you may find Monthly Income Plans such as Tata MIP, Magnum MIP-G or even Alliance MIP to be better performers. One thing you must keep a sharp eye out for is high expenses. With returns on the way down, the extra half per cent that low expense funds provide can really become a lot in the long run.
This article was originally published on November 21, 2003.
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