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Quality Diversified Portfolio

In view of my long-term investment horizon, I have been investing through MF route in equity. I wish to invest in fixed return instruments through PPF instead of debt funds. Please review my portfolio and suggest any changes if required.

I am a 36 year old executive with wife and two small kids in my family. I wish to invest for long term and want to diversify my portfolio across equity, debt and real estate. In view of my long term investment horizon, I am investing in equity and real estate holding. I have been investing through mutual fund route in equity. I wish to invest in fixed return instruments through PPF instead of debt funds. Please review my portfolio and suggest any changes if required.

- Sanjay Deshmukh.

Deshmukh's Portfolio
Assets  % allocation
House (Self-Occupied) 38.00
Plot 12.00
PPF 13.00
Bank Fixed deposits 7.00
Mutual Funds:  
HDFC Equity 8.00
Franklin India Bluechip 4.00
Franklin India Prima 4.00
Reliance Vision-G 2.00
ICICI Power-G 6.00
Total  30.00

Long-term investment horizon and diversification are the top attributes among many others to be kept in mind while setting up a mutual fund portfolio. In that sense, you are certainly moving in the right direction.

A basic check-up of your mutual fund portfolio tells us that the equity exposure in your portfolio accounts for 80 per cent of the assets and the rest is in debt. The average equity portfolio is well-diversified across stocks with no single stock has more than 5 per cent weightage in the average equity assets. Also, the allocation is well-diversified across sectors without much concentration in any particular sector. The portfolio is also widely spread across stock capitalisation with large-caps holding the major pie. The debt holdings in your portfolio largely comprise a mixture of corporate bonds with high quality (AAA-rated) bonds holding the substantial chunk and the rest in bank deposits, GOI securities, treasury bills, etc.

All the diversified equity funds in your portfolio enjoy four and five star ratings from Value Research and are amongst the best category performers. As equities have always proved to be the return-oriented asset class in the long run and since you have the requisite perseverance to hold onto these funds for a long haul, these funds are the most appropriate choice from amongst the entire category of funds. HDFC Equity, Franklin India Bluechip, Franklin India Prima and Reliance Vision have consistently outperformed the category as well as the benchmark performance over a period of time. While Prudential ICICI Power is playing an excellent supplementary role in your portfolio. So, as far as selection of funds goes, you have made a perfect choice and thus a commendable portfolio. The purpose of diversified funds is long-term capital appreciation over a period of time and these funds have delivered what they are supposed to.

The other fund in your portfolio is HDFC MIP and since you have not clearly mentioned the fund's name, we are assuming it to be HDFC MIP Long-term. As MIPs have marginal allocation to equity, it makes them susceptible to volatility. And since the rally in debt market is almost over, the debt component of a MIP will not fetch much return to the fund. You also don't seem to be interested in debt funds. So, it would be wiser if you can move some money out of HDFC MIP to a long-term fixed income avenue like PPF as interest here is tax-free as compared to other fixed income options. The PPF currently offers 8 per cent interest per annum. But the only concern here is liquidity - lock-in of 15 years -- and the maximum investment limit is Rs 70,000 per annum.

All in all, you are maintaining a quality portfolio with a judicious mixture of large as well as mid-caps thereby stemming your downside. However, do monitor your investments on a regular basis to avoid any misfortune.

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