Portfolio for Wealth Generation

I am an NRI, working as a software engineer in USA. My portfolio is described in the table. I want advice on whether this is a long-term wealth-generating portfolio. I am planning to come back to India in 5 years. Should I switch from Franklin Internet Opportunities Fund since they have changed their investment objective?
Vinod Kumar

Vinods Portfolio Fund    Allocation(%) HDFC Equity   17.07 HSBC Equity   12.20 HDFC Top 200   12.20 Franklin India Bluechip   12.20 Franklin India Prima Plus   12.20 Franklin India Opportunities   17.07 Reliance Vision   17.07 Total   100.00

We hold the view that having a debt component, no matter how small it is, essential for every portfolio. Once you have an investment on the debt side you have an asset allocation i.e., a distribution between equity and debt. And there is no point in having a distribution if this is not maintained. So at regular intervals, of say a year, check out the asset allocation.

If the equity component has risen then book profits and transfer the gains to the debt component to realign the portfolio. The net result of this exercise is that profits are encashed and transferred to an asset class where they are stable.

When a review of your portfolio shows that equities have fallen from their original allocation, add more to this asset class. This approach ensures that you are buying more of the asset class, which is relatively cheaper. On the whole a buy low, sell high strategy is implemented. We would thus recommend that you invest at least 10 per cent of your portfolio in debt.

Portfolio Style Break Up Giant Cap   37.12 Large Cap   34.05 Mid Cap   23.78 Small Cap   4.18

Top 5 Sectors (% to NAV) Technology   27.54 Financials   13.53 Diversified   11.56 Automobile   9.08 Energy   7.44

Coming to your portfolio as it currently is. There are areas where we feel slightly uncomfortable. The first is your technology sector allocation, which at 27 per cent is a bit too high. The second is your mid-cap exposure at 28 per cent. We would be more comfortable if this was around 20 per cent. Reducing exposure to Prima Plus or Reliance Vision should take care of this. Except for these two concerns the portfolio is in good shape.

If you are looking for higher technology sector exposure, then Internet Opportunities was doing this job for you. If you feel uncomfortable with its new mandate you can surely exit the fund in part or full. This would also bring down your technology sector exposure.

This article was originally published on April 19, 2004.