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Focus on Core

My aim is to earn 20-25 per cent annualised return and I am willing to stay invested for at least 10 years. I have invested in six funds and plan to further invest Rs 6,000 per month. Is my portfolio fine?
-Sandip Sanghai

I am a 25-year-old long-term investor. My aim is to earn 20-25 per cent annualised return. For this, I am willing to stay invested for at least 10 years. My current investments are spread over six funds. Additionally, I am planning to invest Rs 6,000 per month systematically. Does my portfolio have enough firepower to achieve my target? How should I distribute my further investments?
-Sandip Sanghai


Sandip's Portfolio
Funds  % Allocation
HDFC Premier Multi-Cap 11.76
Magnum MultiCap 7.06
Reliance Equity Opportunities 23.53
UTI Banking Sector 16.47
UTI Master Value-Income 35.3
UTI Mastershare 5.88
Total  100

You are young, willing to spend time in the markets and invest systematically. Your return expectations are on the higher side but not unrealistic - an average diversified equity fund has returned marginally more than 20 per cent in the past 10 years, while the best one has delivered over 35 per cent every year. Therefore, keep your fingers crossed.

Your current portfolio's break-up includes 81.31 per cent allocation to equities and a huge 18.69 per cent to cash. HDFC Premier Multi-Cap and UTI Master Value funds are primarily contributing to the high cash holding. Half of the funds commanding a little over 42 per cent of your assets lack any significant performance track record. You have a banking sector fund which has distorted the overall sector allocation. Your top-holding UTI Master Value fund has decent long-term performance track record, while UTI Mastershare has been a laggard of late.

Obviously, your portfolio has lots of scope for improvement and with your planned investment of Rs 6,000 per month, you can easily do that. We feel your portfolio lacks a strong core. Therefore, you can start with adding one or two core funds such as Franklin India Prima Plus, HDFC Equity, Reliance Vision. Later, you can think of exiting UTI Banking.

However, if you are too convinced about the sector doing well in the future, stay put. Further, keep a strict vigil on the infants in your portfolio - do not tolerate underperformance here. Finally, don't add too many funds and make your life complex. One or two core funds and an equal number of tactical funds (such as mid-, sectoral, contra etc) are all that one needs to create wealth over the long run.