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My MF investment worth Rs 53.50 lakh is spread over 12 funds. I shall invest Rs 15 lakh in 2006. How should I go about it?
-J.S. Anand

I am 65-year-old and have no liability. I have invested Rs 1.80 crore in 6.5 per cent RBI tax-free bond, 8 per cent RBI taxable bond and 5.5 per cent REC capital gain bond. My MF investment worth Rs 53.50 lakh is spread over 12 funds. I shall invest Rs 15 lakh in 2006. How should I go about it? These investments are for my wife and divorced daughter and I do not need to encash the same in my lifetime. However, I would like to have dividend income of Rs 3 lakh from the equity funds.?-J.S. Anand

Anand's Portfolio
Funds  % Allocation
Birla Dividend Yield Plus 3.93
Franklin India Bluechip 8.64
Franklin India Prima 14.12
HDFC Equity 10.77
HDFC LT Advantage Fund 3.36
HDFC Taxsaver 6.5
HSBC Equity 12.04
Magnum Contra 2.43
Pru ICICI Tax Plan 5.84
Reliance Growth 20.03
Reliance Vision 8.01
Tata Equity Opportunities 4.33
Total 100.00

Here's what the Value Research Portfolio Manager says about your investments: 92.29 per cent of the portfolio is invested in equities, 0.17 per cent in debt and the rest in cash. High quality five and four star funds manage nearly 92 per cent of your assets. Nearly half of your portfolio is committed to mid- and small-cap stocks, while large-cap stocks command 45.15 per cent share. At stock and sector levels, your portfolio is well diversified.

Conventional thinking would probably brand your equity exposure as too high for your age but we think that since you have no short-term needs, this is fine. However, within your equity exposure, you have a high allocation to relatively risky mid- and small-cap stocks. This allocation is likely to shoot up further given high concentration of your investments in funds biased towards mid-cap stocks. But given the long-term nature of your portfolio, managing this problem should not be a huge challenge. Going forward, keep a close eye on their share and rebalance from time to time. Another way of managing their dominance could be investing your Rs 15 lakh planned investment in 2006 in large-caps-oriented funds. Of your existing funds, Franklin India Bluechip can be a good choice. Funds like HDFC Equity, HSBC Equity, Reliance Vision too normally maintain good exposure to large-cap stocks.

Regarding dividends, we would like to make it clear that expecting regular dividends from equity funds may not be a wise idea. However, your expectation looks realistic. There's another way of looking at your objective. You want to take out (basically dividend is nothing but your returns. When a fund pays dividend, its NAV drops by that amount) Rs 3 lakh (5.61 per cent of your portfolio) every year. Most of your funds have long history of delivering double-digit returns and therefore this should not be an issue at all. While you can easily continue consuming Rs 3 lakh every year in form of dividends or by redeeming units, the quality funds that you hold would make sure that your portfolio appreciates at a decent pace.

Going forward, we don't feel you need to do anything significant expect for regular monitoring and occasional rebalancing. For your further investments, opt for one of your existing large-cap oriented funds.