I am 52-year-old and have a decent job. I can afford to take high risk in my mutual fund investments. I have put all my money (over Rs 10 lakh) in the diversified equity funds of various mutual funds. Looking at the high volatility being experienced by diversified equity funds recently, I am worried and have started having some doubts about my investment approach. Is my portfolio appropriate for my investment needs?
Dr P.V. Rao
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No need to worry or panic. Your portfolio looks well diversified and the fund selection is also good. You seem to have kept a close eye on the day-to-day market movements, which are quite volatile right now.
However, if you don't need this money immediately, forget worrying about the daily ups and downs in the market and stay invested for a longer period of time. By long-term we mean an investment horizon of at least 3 to 5 years.
A longer holding period will most likely nullify this intermittent volatility and help you generate decent return from your investments. Thus, concentrate on your overall journey, not on what is happening on a day-to-day basis.
Though you feel that you have a high tolerance for risk, but in order to be right and different, you have to be able to control the emotions of greed and fear and follow some asset allocation.
Ideally, a diversified portfolio is said to be one, which has some combination of equity as well as debt components. This is lacking in your case. Since you are just six years away from your retirement, we would suggest you keep a small exposure in some debt funds say 20 per cent.
The scorecard section of this magazine contains a comprehensive list of debt funds with details about their performance and investment particulars.
Of course, that means you will have to part some units of equity funds held by you. But that's not a big deal. As your current portfolio is heavily tilted in favour of mid-caps (nearly 50 per cent), we would suggest you to bring this down to say 20-30 per cent.
As mid-caps are relatively more volatile than the large-caps, a lower allocation to mid-caps will help in reducing the volatility in your overall portfolio. Currently, you hold six funds, which have a mid-cap bias - Reliance Growth, Franklin India Prima, Tata Equity Opportunities, Tata Select Equity, UTI Master Value and Birla Mid-cap. Reduce exposure to some of these, while keeping taxes in mind.
This article was originally published on March 05, 2004.
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