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Funds For Future

I have invested in more than fourteen funds. I also have a reasonable investment in UTI Retirement Benefit Plan. Please advise if any changes are required in the above portfolio
-Suresh

I have some investments (an average of Rs 50,000) in Tata Equity Opportunities Fund, Tata Equity P/E Fund, Tata Infrastructure Fund, Tata Service Industries Fund, Chola Multi Cap, Sundaram Select Midcap, DSPML TIGER Fund, HDFC Premier Multicap, ING Vysya Mid Cap, UTI Dividend Yield Fund, Reliance Equity Opportunities Fund, Reliance NRI Equity Fund, Sundaram SMILE, UTI Master Value etc.

I also have a reasonable investment in UTI Retirement Benefit Plan as well. Which fund should I invest in future? Also, please advise if any changes are required in the above portfolio?
-Suresh

Your investments reflect a lack of planning. It seems you have been investing in every fund that comes your way, or rather, every fund which your distributor comes selling to you. You own more funds than you need. A portfolio with a long list of funds is not necessarily a good one. The fact that it is quite difficult to keep track of every fund in a big portfolio is self-evident from the fact that you had to use the word 'etc.' after naming 14 of them!

Convenience is one of the advantages of mutual funds. By having a big portfolio, 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. In your portfolio, out of the 14 funds you have mentioned, 13 are equity funds, which is far more than the required number.

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.

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.

Another worrisome factor about your portfolio is that most of your funds are very young. Only two of the funds that you have mentioned-UTI Master Value and UTI RBP have a track record of more than three years. Ideally, while selecting a fund, one should look at the track record of the fund to see how it has performed during bull and bear phases of the stock market. However, since most of your funds are quite new, they are yet to pass through the different market cycles to prove their mettle.

For your future investments, we would advice you to pick funds that have a proven track record of performance. There are five broad parameters to consider while choosing a fund:

What are the fund's returns over various time periods?
How much risk does it take?
Who manages it?
What does it invest in?
How much does it cost?

Your existing portfolio is quite diversified across stocks and sectors. But you can achieve the same kind of diversification with lesser number of funds as well. Track their performance regularly, and get rid of the non-performers in due course of time to trim down your portfolio.

Keep in mind your tax considerations and exit loads while exiting the funds. Since many of your investments would be less than one year old, they would be subject to capital gains tax.

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