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A Tech-heavy Portfolio

I am 50-year-old and took VRS last year without any pension benefits. I own a house in Delhi and have two children who are still studying. My monthly expenditure is Rs 12,000. Please review the portfolio and suggest suitable changes.
-M.P. Setia

Your September 2004 cover story on sectoral funds provoked me to review my portfolio. I am sending you the details of my investments. Please review the portfolio and suggest suitable changes to make it more effective. I am 50-year-old and took VRS last year without any pension benefits. I own a house in Delhi and have two children who are still studying. My monthly expenditure is Rs 12,000.
—M.P. Setia

You seem to be a huge fan of sector funds. Of your total 11 equity funds, six are sector funds. We don't know how good you are in tracking these sectors, but one thing is sure that your portfolio doesn't suit your risk-return profile. Though mutual funds account for just 7.72 per cent of your total investments, still, you being 50 years old and taken VRS with no pension benefit, we are not comfortable with your portfolio.

Out of six sector funds, three are technology funds. Among diversified equity funds, UTI India Advantage Equity fund also has 40 per cent allocation to tech stocks. Hence, nearly one-third of your portfolio is into technology. Moreover, four of the top-5 stocks of your portfolio are tech stocks with Infosys accounting for 7.41 per cent exposure. Though technology sector has had a good run so far, but you being a retired person, this is a relatively high concentration in one sector. It would have been better if you had disclosed details of stocks held by you since overall sector exposure has to be seen with regard to overall equity investments. Still, as per the given information, we would suggest you to reduce exposure in technology funds and invest in some good diversified equity funds.

Don't get annoyed by the fact that most of your funds are not rated. The whole category of hybrid debt-oriented funds, which include UTI ULIP, SCUP and RBUP, are not rated. The same is true of technology, banking and pharma fund categories. Moreover, among diversified equity funds, four are new funds, hence are not rated as well.

Coming to your overall assets allocation, including fixed income and equity shares, 80 per cent of your investments are into debt and 20 per cent into equities. And since most of your debt allocations are guaranteed return products, there's har-dly anything to worry about. Thus, considering your monthly req-uirement, we think you would do well to earn more than Rs 12,000 per month (assuming your current investment of approximately Rs 4.5 lakh). Just do minor alterations and don't forget to track your investments on a regular basis.

Setia's Portfolio
Investments  Allocation (%)  
6.50% RBI Tax Free Bonds 27.89 
8% PO MIS 19.31 
PPF 9.87 
Cash in Bank (Sold Shares,etc) 8.58 
6.75% US 64 Tax-Free Bonds 6.98 
6.60% Tax Free ARS Bonds UTI 3.04 
Infrastructure Bonds 2.36 
Bank Fixed Deposits 1.93 
Sub-Total  79.94  
Mutual Funds
UTI ULIP 0.86 
UTI Pharma 0.71 
Sundaram Select Focus 0.64 
Sundaram Midcap 0.64 
UTI Retirement Benefit Plan 0.58 
Franklin India Bluechip 0.58 
UTI Banking 0.54 
Alliance New Millenium 0.54 
Franklin Infotech 0.43 
UTI Software 0.43 
UTI India Advantage Fund 0.43 
ING Select Stocks 0.43 
UTI Basic Industries 0.32 
Sundaram Balanced 0.32 
UTI Senior Citizen Unit Plan 0.28 
Total in Mutual Funds  7.72  
Investments in Equity Shares  12.33 
Grand Total 100.00