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A Well Thought-out Portfolio

I have a portfolio worth Rs 13 lakh. There are no immediate needs and this is a pure long-term portfolio. Kindly suggest any changes to this considering the current and long-term scenario.
-S.P.S. Chauhan

I am a 33-year-old professional working in a private company. My family consists of my wife and daughter. I have covered my daughter's education by taking LIC money back policy. Of the excess income (read savings), my portfolio worth Rs 13 lakh is as stated in the table. There are no immediate needs and this is a pure long-term portfolio. Kindly suggest any changes to this considering the current and long-term scenario. What are your views on this? Should I also opt for Rs 10,000 per month SIP? If yes, then suggest a fund.
—S.P.S. Chauhan


You are one of those readers of this magazine who actually doesn't need much advice. Most of your funds are rated five or four stars by Value Research. The portfolio's overall structure — a spread of large-caps with a side-dish of mid-caps and some small-cap seasoning — is the ideal diet for long-term gains. Over half of your holdings consist of large-cap stocks and the exposure to small-caps is capped below 10 per cent, making it a less risky proposition.

Still, keeping track and evaluation of one's portfolio on a regular basis is a good thing and we are glad that you are doing that. You currently hold 11 diversified equity funds (81.5 per cent of the total MF investments), two MIPs (2.76 per cent of MF exposure), three balanced funds (10.8 per cent of MF allocation) and one short-term debt funds accounting for 4.92 per cent of the total MF investments. In all, this makes up a good asset allocation for a young person like you — 86 per cent of your MF investments is in equities and the remaining 14 per cent into debt. Even if we combine your stock investments of 1.7 lakh and IDBI bonds worth Rs 48,100, the asset allocation stands almost unchanged (85:15 equity-debt allocation). Since we are not specialists in stock-specific research, we are not touching the four stocks held by you. Still, we can say that they may turnout to be a healthy investment over the long-term, as they are large-cap ones.

Coming back to MF investments, you hold maximum exposure in dividend plans, probably, to take the benefit of tax-free dividends in equity-oriented funds. However, for a long-term portfolio like yours, it doesn't matter whether you invest in growth or dividend plan as under the new tax regime long-term capital gains tax is now nil. Overall, the portfolio looks well diversified with no single-sector exposure crossing 15 per cent and no single stock holdings accounting for more than 4 per cent of the total mutual fund investments. Hence, we would not recommend any alteration in your portfolio.

And regarding SIP, we would say that it is the best and most efficient way to create wealth over the long-term. You would be surprised to see the returns that SIP investments in some good equity funds have generated. For example, a five-year SIP in Franklin India Prima has yielded an annualised return of 42.28 per cent. If someone has regularly invested a fixed amount every month in Franklin India Bluechip for the past 10 years, he would have earned an annualised return of 28 per cent. And since you already hold some of the good equity funds like HDFC Equity along with above two funds, choose any one or two of them for the SIP. Since most fund houses have waived-off entry load for SIP, it makes more sense to go ahead with SIP. However, these funds charge an exit load of 2.25 per cent if redeemed before one year. SIPs are also very convenient. Money, deducted from your account and invested, is money you can't spend. And a rupee saved is a rupee earned. Even if each investment is small, over time this can add up to a neat kitty.



Chauhan's Portfolio
Investments  % of Portfolio
Mutual Funds
Alliance Basic Industries Fund - Dividend  3.80
Birla Dividend Yield Plus - Dividend  1.90
Birla Dividend Yield Plus - Growth  4.80
Birla MIP II - Wealth 25 Plan - DM 1.50
Birla Monthly Income Plan C - Growth  0.80
Franklin India Balanced Fund - Dividend  2.70
Franklin India Bluechip Fund - Dividend  5.50
Franklin India Prima Fund - Dividend  6.30
HDFC Equity Fund - Dividend  4.60
HDFC Equity Fund - Growth  7.50
HDFC Prudence Fund - Dividend  4.20
HDFC Top 200 Fund - Dividend  4.00
HSBC Equity Fund - Dividend  10.20
Kotak Balance  2.10
Reliance Growth Fund - Dividend  2.50
Reliance Vision Fund - Dividend  5.70
Reliance Vision Fund - Growth  5.90
Sahara Short Term Plan - Growth  4.10
Tata Pure Equity Fund - Dividend  2.00
UTI Growth & Value Fund - DH 3.20
Total Mutual Funds   83.30
Stocks
Industrial Development Bank of India  7.70
Oil & Natural Gas Corpn Ltd  1.10
Reliance Industries Limited  2.70
Tata Consultancy Services Ltd  1.50
Total Stocks   13.00
Bonds
IDBI Infra Bond 2002 1.50
IDBI Infra Bond 2003 1.10
IDBI Infra Bond 2003 1.10
Total Bonds   3.70
Grand Total 100.00