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Cut Down Equity Exposure

I am 45-year-old. Of my total assets, I have invested 25 per cent in equities, 61.35 per cent in mutual funds and the rest in tax-free bonds. Is the current asset allocation suitable to my age?
—Ebrahim Mohammad Ali

I am a 45-year-old professional. Currently I am investing through SIP in diversified equity funds. I don't need money for at least two to three years. The breakdown of my investments is - Equity: 25 per cent, Mutual Funds: 61.35 per cent and Tax-free bonds: 13.65 per cent. Kindly review my portfolio and advise me if I am moving in the right direction.
—Ebrahim Mohammad Ali




Ebrahim's Portfolio
Mutual Funds  Allocation (%)
Birla Dividend Yield Plus 6.25
Franklin India Bluechip 5.80
Franklin India Prima 1.30
Franklin India Prima Plus 2.40
HDFC Equity 5.80
HDFC Prudence 7.45
Reliance Growth 1.25
Reliance Vision  1.40
Sundaram Growth 7.10
Sundaram Select Midcap 5.40
Tata Growth 1.00
Tata Pure Equity 4.15
Tata Young Citizen 8.35
UTI CCB 20.50
UTI RBP 13.54
UTI SCUP 3.90
UTI ULIP 4.40
Total 100.00


One broad rule of thumb is that allocation to equities should be 100 minus your age. As you are 45 years old, your equity allocation should ideally be 55 per cent (100-45) of the total investments. In your portfolio, your direct investment in equities (assuming it to be in stocks) is 25 per cent. And out of your total mutual fund investments of 61.35 per cent, equities account for 64 per cent, i.e., 40 per cent of the total investments.

Thus total equity allocation (including 25 per cent investment is stocks) make up to 65 per cent, which is 10 per cent more than the desired asset allocation. Hence, we would advise you to cut down your allocation to either diversified equity funds or stocks and transfer that money into a good equity-oriented hybrid funds like HDFC Prudence—the fund that you already own. This will also reduce the number of funds you hold and make managing your portfolio easier.

Coming to your fund selection, you hold 11 diversified equity funds and six hybrid funds. Since all your equity funds are good ones, we are comfortable with them. Overall, your portfolio is evenly balanced between large- and mid-cap stocks. It is also well-diversified, with no single sector exceeding 15 per cent and no single stocks allocation exceeding five per cent.

Since you have not disclosed your other equity investments, we can't comment on them. But there is some probability that the stocks held by you may also be present in the portfolios of funds held by you. You should generate this report in the Portfolio Manager at our website www.valueresearchonline.com and make sure that you are not overly concentrated on any one sector or stock.

On the debt side, the portfolio looks fine. A majority of your funds' investments is in AAA-rated corporate bonds and government securities. Below AAA-rated bonds is just confined to below 10 per cent of your total debt funds' investments.

Since you are investing in equity funds through SIP, you shouldn't be bothered about the market reaching new highs. This is the right strategy to adopt on all occasions; after all you are not a trader or a speculator. All long-term investment strategies have to be a disciplined one.