I have been a stock investor all through my life. In the last 35 years, I have taken some risk in the market and earned handsome returns. Now I am 72, and have started investing in mutual funds too. So far, I have bought 49 funds with the sole aim of maximising returns. I am not dependent on my investments for day-to-day expenses and willing to stay invested for more than five years or so if need be. Please review my portfolio and suggest how I should restructure it.-Thakorbhai L Vashi
The Value Research Portfolio Manager suggests that equities account for 93.76 per cent of your portfolio spread over 49 funds across 14 AMCs. That's, we feel, a little too much of diversification. Nearly half the funds, accounting for 27.59 per cent of your assets, are less than three-year old and hence are still to come under the ambit of Value Research rating. Large-cap stocks dominate your portfolio with 55.35 per cent exposure, followed by 39.19 per cent by mid-and small-cap stocks.
We see two major problems in your portfolio. First is the quality of funds. You seem to have invested in every new fund that has come your way. At Value Research, we feel new funds do not make sense given their high cost and lack of track record. Among your older funds, you could have avoided below three-star rated funds and the sector funds.
The second problem is, of course, the number. We don't understand why you need 49 funds? One also buys mutual fund for convenience but you are completely missing out on this advantage. In fact, you have made your portfolio so complex that it's tough to get a clear picture out of it. You have several funds of same style with similar portfolio leading to high level of duplication.
Your portfolio needs major restructuring to clear the mess. However, with so many new funds, the process is not going to be easy as exiting new funds would mean paying loads and capital gains tax in many cases. One way out could be dividing your portfolio in two parts - Part I for the rated and more than three-year-old sector funds; and Part II for new funds (see your portfolio chart).
You can start restructuring Part I by quitting the sector funds. No one probably needs a sector fund. Further, you can consider consolidating your portfolio in five or four star funds.
We found something interesting about your portfolio while looking for ways to reduce the number of funds. If you invest all your money in the six five-star funds in your portfolio in equal proportion you will end up with almost the same portfolio, as far as capitalisation is concerned, as you have with 49 funds. Therefore, this can be one way to approach the restructuring.
Dealing with Part II is tricky and time consuming. We suggest you follow a low tolerance approach towards underperformers for funds falling in this group. Throw out the laggards and channel the proceeds to five-star members of Part I. While doing so, keep exit load and tax issues in mind.