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A Cluttered Portfolio

I have invested Rs 7.5 lakh in fixed income securities, Rs 4 lakh in stocks and Rs 14.39 lakh in mutual funds, apart from monthly SIPs of Rs 106,500. Am I overweight on equities? -Jai Narayan Rathore

I am 40-year-old. My wife and I have insurance cover of Rs 30 lakh. I have invested around Rs 7.5 lakh in fixed income instruments, 4 lakh in stocks and another 14.39 lakh in various mutual funds. At present, I am investing Rs 106,500 per month through SIP route in mutual funds. Please review my portfolio and see if I am overweight on equities.
-Jai Narayan Rathore

We are missing out on some key information about your risk profile and investment horizon. Therefore we can't say if your current equity allocation is apt for you or not. At present, nearly half of your total asset is invested in equities. Given that the SIP worth Rs 106,500 per month is flowing mostly in equity funds, this percentage will shoot up sharply in days to come. Therefore decide for yourself if you need that much equity. If you have a long investment horizon of over five to seven years, this should do no harm to you.

Now let's get back to your mutual fund portfolio. The Value Research Portfolio Manager suggests that equities account for 84 per cent of your Rs 14.39 lakh allocation to funds. Nearly 10 per cent is in debt and the rest in cash. Except for HDFC Prudence, all your investments are in diversified equity funds. Mid- and small-cap stocks have huge concentration in your portfolio--they dominate with 57 per cent allocation. This is likely to go up further given the fact that most of your bigger SIPs are into mid-cap funds. You hold quality funds with majority of your holdings enjoying at least four stars from Value Research. At stock and sector level, the portfolio is well-diversified.

While the portfolio looks ok, there's scope for improvement. We would like to suggest two key changes. The first is obviously related to your exposure to relatively riskier mid- and small-cap stocks. Keep a close watch on them. Too high exposure would make your portfolio highly volatile. You can manage your allocation to them by channeling some of your further SIPs into large-cap funds like Franklin India Bluechip, HDFC Top 200, Principal Growth or others. However, there's no need to rush as most of your Rs 4 lakh additional allocation to stocks are committed to large-cap companies. Let your existing SIPs end before making this change.

The second change is a bit tricky, would take time and require a lot of planning. This is related to the number of funds in your portfolio. Why do you need 19 funds? By having such a cluttered portfolio, you are missing on the advantage of convenience that mutual funds offer. Therefore, try to exit some of your funds to bring their number to a more manageable level. It would be difficult for you to decide which funds to exit and which ones keep as most of them are quality offerings. So take your time. Do it in the next few years and keep tax implications in mind.

Hopefully, these changes would sharpen your portfolio's focus.