I am a 30-year-old IT consultant looking for a high-risk, high-growth mutual fund portfolio. At present, I have the following composition of funds (see table). Do I need to realign my portfolio to meet my objective? With the stock index at its three-year high, is it the right time to invest in equity funds or should I wait for a dip?
It's good to see that your thinking is in the right direction. In the early 30s, you should be looking at a high-risk, high-growth portfolio. And for that, the core part of your portfolio should be in equity. Though you have a sizeable allocation to equity (58 per cent), it should ideally be much higher, say at 80 per cent.
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According to the Portfolio Check-up at our website, your equity portfolio is well diversified with no single stock accounting for over 6.5 per cent of the total assets. Half the portfolio comprises large-cap stocks, which is how your portfolio should be. The only cause for concern is the heavy concentration in two sectors—automobiles (23.17 per cent) and financial services (21.68 per cent). This is mainly because of Alliance Basic Industries has a relatively higher exposure in both the sectors (34 per cent and 30 per cent, respectively).
Franklin India Prima too has a higher exposure to automobile stocks (26.5 per cent). Ideally, for a well-diversified equity portfolio, no single sector should account for 15 per cent of the portfolio. Thus, we advise you to reduce exposure in these two schemes.
However, for that, you don't have to sell units of Franklin India Prima or Alliance Basic Industries. This can automatically be taken care of once you increase your equity allocation from the existing 58 per cent to 80 per cent. But of course, you need to reduce your debt allocation, which we will discuss later. In addition to HDFC Equity, consider investing in two or three more well-diversified equity funds, which have a good performance track record. Franklin India Bluechip, Templeton India Growth, Sundaram Growth and IL&FS Growth & Value are few options.
On the debt side, you have a relatively higher allocation (40 per cent), which should be halved to 20 per cent. Within this, government securities account for 63 per cent of your portfolio and 25 per cent is in AAA-rated bonds. As HDFC Income also has a gilt component, there is no point in duplication of assets classes. Thus, reduce your exposure in Templeton India Government Securities to say 5 per cent. Also, to rebalance your overall debt-equity allocation, restrict your investment in HDFC Income to 10 per cent. Moreover, if we remove equity from the MIP, then it too becomes a bond fund.
Thus, confine your investment in Alliance MIP to not more than 7 per cent. This way, we think your overall portfolio will shape up quite well considering your age and risk-return profile.