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Fine For the Long-term

I have invested Rs 25,000 each six funds. Now, I want to invest in Magnum Contra, HDFC Tax Saver and HDFC LT Advantage funds. Am I on track?
-Nishant Jha

I have invested Rs 25,000 each in Reliance Vision, Reliance Growth, Franklin India Prima, Franklin India Bluechip, HSBC Midcap and Fidelity Equity funds. Now, I want to invest in Magnum Contra, HDFC Tax Saver and HDFC Long Term Advantage funds through the SIP route. Am I on track?
-Nishant Jha

Your current portfolio is highly aggressive. When we ran your funds though the Value Research Portfolio Manager, we discovered the following things:

You hold an all-equity portfolio. Mid- and small-cap stocks are in abundance-they account for as much as 60 per cent of your equity holdings.

Both at stock and sector levels, you have a well-diversified portfolio with no stock or sector accounting for over 5 and 14 per cent of your assets.

If you are a long-term and patient investor, the portfolio is fine. We have used the word 'patient' because with over 60 per cent exposure to mid-cap and smaller companies, your returns might experience wild swings in the short-term. But if you have time by your side, you will be suitably rewarded.

Among your funds, four have commendable performance record and are some of the best options available in the diversified equity funds' category. However, investments in new funds like Fidelity Equity and HSBC Midcap seem to be driven by media hype. Your portfolio sans these two funds could have looked more solid. But since you have invested, we suggest you stay put and track their performances closely.

As far as investment in Magnum Contra is concerned, we feel you already have many diversified equity funds in your portfolio. Magnum Contra has a great track record and in case you have strong beliefs in its contarian approach, go ahead with your investments.

However, we feel it's time to introduce some debt to your portfolio. An ideal way could be investment in a balanced fund.

Your decision to invest in tax-planning funds is a welcome step. The two funds that you have selected are among the best in the category. However, a single fund would serve the purpose. In case you want to invest in two funds, look for diversification across AMCs. You can choose one of the two funds from HDFC and one from some other fund house. Here, you can choose a large-cap dominated fund to balance your overall portfolio.

As far as investments through systematic investment planning route are concerned, you are on track. At Value Research, we feel it's the best way to enter the market. Here's why: ING Vysya Select Stocks has the worst five year trailing return as on June 10, 2005. A five-year SIP in the fund ending June 1, 2005, could have earned you over 20 per cent. Had you invested at one go, you could have actually lost over 5 per cent.



Nishant's Portfolio
Fund  % Allocation
Fidelity Equity 16.67
Franklin India Bluechip 16.67
Franklin India Prima 16.67
HSBC Midcap Equity 16.67
Reliance Growth 16.67
Reliance Vision 16.67
Total   100.00