I am an absolute novice when it comes to the stock markets or investing. I have been investing in mutual funds via SIP as well as one-time investments. I am 35-year-old and can take high risk for high returns. My investment horizon is three to five years. Given the objective, is my current pattern of investment correct? Suggest some additional mutual funds schemes suitable to my investment needs. Does my portfolio require any reshuffle?
—Name withheld on request
Your portfolio does not show that you are a novice. The most important aspect of investing is reckoning one's risk-taking ability and acting accordingly. We don't know whether it's accidental or intentional, but you seem to have done this exceptionally well.
Nearly 80 per cent of your investments are in equities, which is suitable to your age, risk-taking ability and long investment horizon. Equities have always been proved to be the best asset class in terms of generating good returns over the long-term. Since most of your equity fund investments are through SIPs, we would like you to continue with this strategy. This will reduce your risk and make you save regularly. Historically, SIP investing has generated better returns than one-time investments. For example, a 5-year SIP in Franklin India Bluechip has yielded 32 per cent return (annualised).
Since you already have 12 diversified equity funds spread over large-cap funds like Franklin India Bluechip, HSBC Equity, etc, as well as mid-cap funds (Franklin India Prima, Reliance Growth, etc), we would not advise any further additions. Thus, whatever new investments have to be made, do it in the existing funds and track your overall asset allocation.
You will have to dynamically alter equity-debt allocation depending on your requirement at any given point of time.
However, there is some duplication in your equity portfolio. You have 4.57 per cent investments in Kotak Equity FoF, which eventually has two third of its assets invested in funds already held by you.
Though it's not a bad idea to diversify through fund of funds, but there is no point paying something extra to earn same return as your existing portfolio delivers. FoFs charge 0.7 per cent more as expense as compared to individual funds.
And, no portfolio is complete if it doesn't have the bonds. Since 35 per cent of your investment are in HDFC Prudence, this aspect has been adequately taken care of as it has 40 per cent allocation to bonds (the remaining 60 per cent is invested in stocks). HDFC Prudence is one of the top-performing funds in the category for years and we have no problem if you increase allocation to this fund further. Even FT India Balanced is a good fund to hold on to.
If you can abide by these simple suggestions, we are sure you would achieve your target with minimal risk. And as we have not tinkered with your portfolio to a great extent, it definitely suggests that you hold a good portfolio. Just be confident and keep investing. We wish you all the best.
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
This article was originally published on December 28, 2004.
Ask Value Research 
New episodes every Friday 
New Process Alert 
Seems like you've uploaded a wrong QR code. Please upload the QR code downloaded from MF Central platform.
