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A Problem of Plenty

I am 42 years old and have invested Rs 38 lakh through mutual funds in the last six years. Is my portfolio a suitable one? Please advise -- -Sreekanth

I am 42 years old and have invested Rs 38 lakh through mutual funds in the last six years. I am looking for capital appreciation as I already have substantial investments in public provident fund, bonds, insurance etc. I also want to invest an additional Rs 40 lakh in mutual funds and plan to allocate Rs 4 lakh each to Tata Equity PE and HSBC India Opportunities Fund. I can stay put for five years and am expecting a return of 10-12 per cent. Please advice.

In your six years of mutual funds-investing life, we are sure that by now you could have gained enough experience to run a fund of funds. With 21 funds, you own just too many funds. We suggest you to reduce this number to around 14.

Coming to your investments, we must congratulate you on the way you have shaped your portfolio. Given your long-term time horizon of five years, an equity allocation of 75.46 per cent is a bit high but it is fine as you have mentioned that you hold substantial investments in PPF, bonds etc. At 29.70 per cent, your mid-cap exposure is in the comfortable zone. In fact, a 61.73 per cent allocation to large-caps will make sure that your portfolio grows handsomely with stability. At the stock level also, your portfolio is well-diversified with no stock having more than 5 per cent exposure.

At 7.34 per cent, your cash position is marginally high but you can hardly do anything about it except blaming MIPs and balanced funds for it. Over 45 per cent of the funds held by you have at least a four-star rating from us. Non-rated funds have a high percentage at 33.33 per cent. But don't bother about them, as they are not eligible for rating.

Coming back to the issue of number of funds, we feel that all your diversified equity funds, except for UTI Brand Value Fund and Principal Dividend Yield Fund, which is a new fund, have performed well over the long-term and should deserve a place in your portfolio. We also feel that you can do without sectoral offerings. UTI MIP 2001-DY has disappointed, both in the long as well as short term, so you can consider exiting the fund.

As far as your proposed investment in the Tata Equity PE and HSBC India Opportunities Fund is concerned, we feel that you have better options available. We are not saying that the two funds are bad-they are fresh offerings and still to prove their worth in different market cycles.

You already have some good diversified and balanced funds. We feel you should entrust your additional Rs 40 lakh to them. In case you are looking for new funds, try HDFC Equity, Reliance Growth, Reliance Vision or HDFC Prudence. But then, do exit some of the three-star funds.

Sreekanth's Portfolio
Mutual Funds  Allocation (%)
Franklin India Bluechip-G 6.3
Franklin India Prima Plus-G 3.1
Franklin India Prima-G 1.98
Franklin Pharma-G 5.1
FT India Balanced-G 10.64
HDFC Balanced-D 4.65
HDFC Growth-G 2.93
Principal Dividend Yield-G 10.5
Principal Growth-D 0.52
Principal Growth-G 1.92
Sundaram Balanced Fund-D 8.09
Sundaram Growth-G 6.95
Templeton India Growth-G 10.81
UTI Brand Value 2.61
UTI MIP 2000 (II)-DY 6.87
UTI MIP 2000 (III)-Cum 2.37
UTI MIP 2001-DY 5.09
UTI Pharma & Healthcare 0.17
UTI Services Sector 4.92
UTI Software 0.51
Total 100