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A Long-term Portfolio

I am a 37-year-old. My allocation to equities is 15 per cent. I have invested in funds, mainly through the SIP route. Please review my portfolio and see if it has the potential to deliver
-Cdr Srinivas Ganapathi

I am a 37-year-old long-term investor working in the Indian Navy. I am adequately insured and have sufficient investments in Public Provident Fund and RBI bonds. My allocation to equities is 15 per cent. I have invested in mutual funds, mainly through the systematic planning route. Please review my portfolio and see if it has the potential to deliver. Is there any duplication in my portfolio? For example, DSPML Top 100 and HDFC Top 200 have similar investment styles. Should I add a small cap fund? Is the number of funds too large to handle? Please advice.
-Cdr Srinivas Ganapathi


Here are the specifics of your portfolio that the Value Research Portfolio Manager pointed out:

About 80 per cent of your mutual fund assets are allocated to equities, 14.79 per cent to debt and the rest to cash. Of your 13 funds, 12 are diversified equity schemes. Majority of your funds command high quality ratings from Value Research. Large-cap stocks (60.98 per cent) lead your portfolio, while the exposure to mid- and small-cap stocks is 39 per cent. At the stock level, your portfolio is well diversified. Sector wise, though, it's a tad concentrated with the top three sectors commanding nearly 43 per cent of your funds' assets.

We feel your current portfolio has enough firepower to deliver in the long run. However, your overall exposure of 15 per cent to equities is way too low in view of your long-term investment horizon, keeping in mind your age. You should increase it significantly in the days to come. One way could be allocating your tax-planning investments to an ELSS for the next few years. While doing so, adopt the SIP route (which you do already). Moving to your query related to small-cap funds, we feel you already have enough exposure (10.33 per cent) to them. Remember that small-cap stocks are highly risky. Their abundance may be injurious to your financial health.

Whether a portfolio of 12 funds is too large to handle or not you should decide yourself. But you definitely don't need an army of funds to win the battle of investment. For majority of us, three or four diversified equity funds should be enough. Of course, for diversification across asset classes, one can add some debt funds as well.

On the issue of duplication, we partially agree with you that DSPML Top 100 and HDFC Top 200 are similar in the sense that both invest in large companies. These kinds of duplications are bound to happen if you keep a crowded portfolio. That's why we believe one should have limited funds.

Finally, we would like to congratulate you for not taking the bet of new fund offers. Though unrated (or less than three-year-old) funds account for nearly 31 per cent of your portfolio, none of them are that fresh. Your newest fund also is more than a year old. This indicates an important investment approach that's crucial for your long-term success. Those who get swayed by fancy new offers are likely to commit more mistakes than those who repose their faith in tested funds.