I have a portfolio worth Rs 12.68 lakh across 33 funds. Please evaluate and suggest changes.
-Jaswinder
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You have many more funds than you actually need.
Convenience is one of the advantages of mutual funds. By having a portfolio of 31 funds you are definitely missing out on this benefit. There's no set rule as to how many funds one should have. But we feel it should be below 12, depending on the amount invested and the need for diversification across categories and schemes.
Remember the purpose of investing in more than one fund is to build a well-diversified portfolio, spread over various asset classes including stocks, bonds and money market instruments. Further, you can choose funds on the basis of stocks they invest in, like large-cap, mid-cap, small-caps or a combination of all three. On the debt side, you should look for credit quality and maturity of papers. You also have the option to choose a fund that invests in both stocks and bonds. But you definitely don't need 31 funds to achieve that sort of diversification.
Monitoring a large number of funds is not an easy job. You may miss out on how your individual funds are doing vis-à-vis their peers. Also, similar funds could lead to duplication of stocks. For example, Siemens, Infosys, SBI and TCS are top holdings of a number of funds in your portfolio. SBI alone is the top holding of six funds.
A 31-fund portfolio can also result in over-diversification and might turn out to be like an index fund sans the advantage of low costs that index funds offer.
Therefore, our one-point advice to you is: reduce the number of funds and bring it down to around 10. Depending on investment horizon, choose some good diversified equity, balanced and debt funds; you already have such funds in your portfolio. You would face a challenge while selecting funds as your existing portfolio consists of high quality funds. We would suggest you to devise a method of your own. For example, you can choose funds with a good performance record of say three to five years. Capitalisation allocation of equity funds, equity exposure of balanced funds and maturity and credit quality of debt funds could be another.
While rebalancing the portfolio, keep tax implications in mind and do it in a systematic way. There's no need to rush.
This article was originally published on June 21, 2005.
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