I am 51 years old and physically handicapped. Mutual Fund investments are my main source of income. Currently, I have incurred a capital loss in excess of Rs 40,000 on my investments, which has come as a shock to me. Please examine my portfolio and advise.
Name withheld on Request
At the outset, we would like to clarify that looking for short-term gains tantamount to speculation and speculation is fraught with danger. From the details you have provided of your investments, almost all of your investments are less than a year old and this is not a sufficient period to evaluate their performance. Perhaps your losses have been accentuated by the fact that you chose to invest at a time when the markets had already reached their peak. Another contributory factor to the negative return from your investments is the fact that 22 per cent of your portfolio is into MIPs. MIPs as a category have been unable to repeat their previous years' performance because of the double squeeze they are facing from a volatile equity market and dipping returns from debt securities caused by expectations of an increase in interest rates.
On analysis of your overall investments we find that 41.6 per cent of your investments are into equities, 37.2 per cent into debt and the remaining 21.2 per cent is in cash. This is quite a good scheme for asset allocation. Even though the level of cash holdings might look on the higher side, perhaps, it is not that bad an idea given the uncertainty that shrouds our equity markets and the rising yields on bonds which are indicative of a rise in interest rates. A rise in interest rates will have a detrimental effect on long and medium maturity debt schemes. Hence, a wait and watch strategy might prove to be a winning one in such a scenario.
Of your overall equity allocation 37 per cent is into Franklin India Prima and HDFC Equity both equity-diversified funds with an excellent track record and which have consistently outperformed the market. So, we feel that there is little to worry on that front. However, with almost 13.5 per cent of your portfolio you have taken sectoral bets. Investing in sectoral funds is usually much more risky and requires not just good investing sense but a thorough knowledge of the sector. In case, you lack from the latter with regard to any of the sectors into which you have invested then we suggest you move out of those gradually into equity-diversified funds.
As far as your debt holdings are concerned they have been routed through the MIPs which usually have debt holdings with an average maturity of 2-4 years. Perhaps, gradually moving some portion of your debt portfolio to either short-maturity liquid funds or floating rate funds would be a good alternative as it would help you in capital preservation. In a rising interest rate scenario both these fund categories are able to limit their downside risks vis-à-vis other debt categories.
Finally, we would like to reiterate that in the long-run (say, 3-5 years) equity-diversified schemes have always generated good returns. So, if you are able to achieve your sectoral allocation goals through diversified equity funds, then exiting sectoral funds might be a good idea. Most importantly, do not panic, as capital markets are cyclic and there is always a peak after a trough.