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Most of my investments are in fixed-return instruments, while I have also put some money in equity funds. I expect to earn 15 per cent per year and am willing to take some exposure to mid-cap funds. Please review my portfolio and suggest.
-Kadayam

I am a retired person. Most of my investments are in fixed instruments like RBI bonds, PPF etc. To cover the effect of inflation, I have also invested some money in equity funds. I prefer funds maintaining high allocation to stable giant and large-cap stocks. I expect to earn 15 per cent per year and for that I am willing to take some exposure to mid-cap funds as well. I have started Rs 1,000 SIPs in Franklin Bluechip, Franklin Flexicap, Franklin Prima, HDFC Equity, and HSBC Equity funds for 36 months. I would like to trim my portfolio to a total of 10 funds with three ELSS funds. I am not very happy about HDFC Core & Satellite and HDFC Premium Multicap Fund. What is your opinion? Please review my portfolio. I can stay invested for more than five years and would like one or two ELSS funds too to keep the taxmen at bay.
-Kadayam



Kadayam's Portfolio
Fund  % Allocation
Franklin India Bluechip 2.97
Franklin India Flexi Cap 12.41
Franklin India Prima 3.13
HDFC Core & Satellite 8.58
HDFC Equity 3.89
HDFC LT Advantage Fund 7.30
HDFC Premier Multi-Cap 8.34
HDFC Taxsaver 7.70
HDFC Top 200 8.62
HSBC Equity 9.02
HSBC Midcap Equity 4.38
Pru ICICI Tax Plan 7.65
Reliance Growth 2.18
Reliance Tax Saver 4.69
Reliance Vision 9.14
Total 100

Most of the funds have earned top ratings from Value Research. However, 40 per cent of your funds managing nearly half of your total assets are less than three-year-old and hence are not rated as yet. Of these, four were launched in 2005 only. Large-cap stocks dominate your portfolio with an exposure of 53.31 per cent, while mid- and small-cap stocks command 44.25 per cent share. Top three sectors constitutes 41.62 per cent of your assets, while at stock level your portfolio is well-diversified with no stock accounting for more than 5 per cent share.

Except for high allocation to new funds, your overall portfolio looks in shape at the moment. Among the new funds, HSBC Equity and HDFC Core & Satellite are more than one-year-old. While the former has established itself as a credible equity fund, the later too has performed reasonably well. Our concern is related to the four other new funds, which form nearly 30 per cent of your portfolio. Unfortunately, you can't do much about them except for adopting a wait-and-watch policy. So far, they have done reasonably well. You should track them closely from now onwards.

Though predicting future returns from equity assets is next to impossible, your expectation of earning 15 per cent a year looks realistic. As far as your preference to large-caps is concerned, your portfolio is unlikely to achieve it automatically given your high exposure to mid- and multi-cap funds. Since you wish to restrict number of funds in your portfolio to 10, you can consider exiting some of the mid-cap funds while rebalancing the portfolio. While large-cap funds like Franklin India Bluechip could form the core of your portfolio, you can have some exposure to funds like HDFC Equity and HSBC Equity, which invest a part of their portfolios in mid- and smaller companies.