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Problem of Plenty

I wish to adjust my portfolio to make it more effective and also reduce the number of schemes I am holding. I have long-term horizon of three years. -Bipin I. Shah

I wish to adjust my portfolio to make it more effective and also reduce the number of schemes I am holding. I have long-term horizon of three years. -Bipin I. Shah

You appear to be a fund collector. Tracking 29 funds is not an easy task. We are happy that you too have realised the urgency to churn your portfolio and cut down on number of funds. We will touch this issue later. Before that, let's see how your portfolio looks like. Currently, 66 per cent of your investments are in equities and the rest in bonds and cash. Since you have not mentioned your age, we would not be able to say whether this asset allocation is in conjunction to your risk taking ability. But as your investment horizon is long, it's a good portfolio.

Shah's Portfolio
Funds  Allocation (%)
Franklin India Bluechip D  10.19
Reliance Income DY  8.38
Birla MIP A DM  7.75
Kotak 30 D  6.43
Tata Pure Equity  5.92
HDFC Equity D  4.99
Reliance Growth D 4.76
Birla Advantage B  3.90
K Bond Deposit D  3.66
Cholamandalam Growth D  3.01
HDFC Tax 2000 D  2.61
HDFC Top 200 G  2.51
Reliance Power Sector D  2.42
Alliance Equity D  2.41
Tata Equity Opportunity 2.18
Pru ICICI Dynamic Plan  2.10
Pru ICICI Growth D  2.08
Alliance Frontline Equity D  1.84
Principal Growth G  1.83
HDFC Capital Builder D  1.73
Reliance Vision D  1.72
Tata Equity P/E Fund D  1.67
HSBC Equity D  1.64
UTI Petro  1.58
UTI Growth & Value DH 1.48
Sundaram Growth G  1.37
Pru ICICI Power D  0.97
DSPML Equity  0.81
Total  100.00
On the equity side, your portfolio looks widely diversified with no stock accounting for more than 5 per cent of the total investments. Most of your fund's investments are in large-cap stocks (56 per cent), which is quite good. Since the exposure to small-cap stocks is low (under 12 per cent), it's a low risk portfolio. Even on the sector exposure, the portfolio is well spread. On the debt side, your portfolio is of good quality bonds.

Let's come to your core question of curtailing complications. You must be comfortable with the two MIPs and two income funds as some exposure to bond is required for a good asset allocation and diversification across asset classes. However, for greater stability, you can move out of income funds in favour of floating rate funds.

But it's the equity funds that have made your job Herculean. First and foremost, make-up your mind to reduce the number of funds to 10-13 from the current 24 funds. You can't touch HDFC Tax Plan 2000 being a tax-planning fund (3-year lock-in). And the two sector funds are also fine as they just account for 4 per cent of your portfolio. Thus you are now left with 21 diversified equity funds, which has to be reduced to 10. This is a bit tough ask, considering the fact that most of your picks are good ones - boast above 3-star Value Research fund rating.

Hence, you need to devise certain homemade criteria for eliminating funds. For example, you can move out of all those funds in which your exposure is less than 5 per cent of the total equity investments and invest in two or three good funds within them. We are not saying that this is the only way out. You can devise your own rule after all it's your money. But yes, this will surely take care of your problem of plenty. Why waste so much time in managing folios of small investments if that can be done in a more efficient way through two-three funds? You might think that this would reduce diversification. But for that, you are already holding 6-7 other good equity funds.

But before arriving at any conclusion, do check out for tax consequences of portfolio reshuffling. Avoid those funds in which you have invested recently so that you are not liable for short-term capital gains tax. Hence, to reduce tax payment, exit funds, which your are holding for more than a year.

Even then, as most of your investments are in dividend plans the gain part won't be much. Still why pay tax unnecessarily if it can be done away with.

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