I am 45-year-old and looking for long-term growth. My wife and I have been investing regularly for the past two years and my total investment is about Rs 4 lakh. I can take more than average risk. I have given my portfolio in percentage below. I am not looking for regular income.
I am thinking to invest 70 per cent in equity and rest in debt. Please advise me on changes in portfolio, if required, particularly with the income from debt funds dwindling. My wife and I have invested in equity-linked tax scheme for tax savings.
—S. Raghunathan
We appreciate your line of thinking with regard to long-term investing and willingness to take above average risk. However, as per your desired investment profile, minor alternation in the current asset allocation would be advisable.
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Currently, 65 per cent of your assets are parked in equities and the balance in debt and cash. Since you are investing for long-term and don't require regular income, switching some of your income fund investments to one or two good equity-oriented hybrid funds like HDFC Prudence or FT India Balanced won't be a bad idea.
Moreover, 25 per cent of your investments are in MIPs, which needs to be brought down to 15 per cent by increasing exposure in hybrid or equity funds. This would be desirable following the expectation of more volatility in the debt market in the near term. Those apart, this will be tax advantageous too as the long-term capital gains tax on equity-oriented funds have been removed. Otherwise in debt fund and MIPs, you would be liable for 10 per cent long-term capital gains tax on redemption. This will also reduce the number of funds in your kitty and would fulfill your criteria of having 70 per cent exposure in equities as well.
That was all about your debt and hybrid funds. Now let's analyse your equity funds. You currently hold five tax-planning equity funds, which is fine as they are serving some purpose — reducing tax liability.
This can be re-invested after the lock in of three years to again get the tax benefit in that year. The other diversified equity funds held by you have a decent performance track record. None of your funds boasts a Value Research Fund Rating of less than 3-star.
Overall, the exposure to large-cap stocks is nearly 60 per cent and mid-caps account for 33 per cent of the portfolio. One good thing about your portfolio is the very low allocation to risky small-cap stocks.
This is largely because except for Franklin India Prima and Pru ICICI Power most of your equity funds have investments in large-cap stocks. Your portfolio also looks good from the diversification angle — both in terms of single stock exposure (not over 5 per cent) and single sector exposure (below 17 per cent).
Hope our suggestions would go a long way in making your investing life easy and simple.
This article was originally published on October 21, 2004.
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