We (myself and wife) are 45 years old. Both of us are government doctors, working for the last 18 years. We have two kids-my son is 16-year-old, while my daughter's age is 13 years. 50 per cent of our savings is in properties, 20 per cent in government securities and insurance, 5 per cent in gold and the remaining is spread over 27 mutual funds. We are long-term investors and don't see any major expenditure other than kids education in the near future. Please review our portfolio and suggest ways to improve it.
—Dr Praveen Arora
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Your portfolio looks messy. Nearly 56 per cent of your 27-member portfolio is invested in new or unrated funds. 93 per cent of the money is invested in equities, 2.12 per cent in debt, while the rest in cash. Mid- and small-cap stocks dominate with an allocation of 51 per cent. While you have collected a little bit of everything, your investments lack focus. You have chosen to entrust nearly half of your mutual fund portfolio to new funds. Funds are similar to doctors-they gain experience and become valuable with time. By investing a major part of your money in new funds, you have handed over the strings of your portfolio to an inexperienced doctor (fund). But don't worry. It's better to have such a portfolio than not having anything.
There's no reason to invest in so many funds. One invests in funds for convenience. Currently you are completely missing out on this advantage. At Value Research we feel three to four funds are enough for any portfolio. Our one-point suggestion for you would be to cut the number of funds. You can broadly do this by keeping two things in mind-the time horizon and your goal. Since you have mentioned that you are a long-term investor, we are assuming that the money would stay invested for the next over five years.
Your possible goal could be kids education. Divide your portfolio in three parts-one for your son (invest more for him as he would be needing the money earlier), one for daughter and the rest for any other need. Since your son is 16-years of age already, he might need the money in near future. Therefore, his portfolio should be safer. If his needs could be met by redeeming some of your fixed income assets, nothing like it. If you depend on your mutual funds, opt for relatively less risky bond funds, MIPs or at the most balance funds. For your daughter you have enough time to go for an all-equity portfolio.
This article was originally published on December 06, 2005.
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