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Out of my retirement savings, I want to create two portfolios of Rs 10 lakh each for my two sons and distribute the money among six funds. Is it reasonable to expect an annualised return of 21.50 per cent?- J P Dixit

Out of my retirement savings, I want to create two portfolios of Rs 10 lakh each for my sons aged 27 and 31 years and distribute the money among six funds. I have no liabilities and sufficient liquidity. I can stay invested for the next at least 10 years. If it's a bear market, my sons can wait for another two to three years. Both of them are well-settled and do not require money out of these portfolios. Is it reasonable to expect an annualised return of 21.50 per cent?

I intend to shift the returns generated in excess of 25 per cent by Franklin Prima, Magnum Contra and Reliance Growth to HDFC Prudence every year.
- J P Dixit


J P Dixit's Portfolio
Funds  % Allocation
Franklin India Prima 10
HDFC Equity 20
HDFC Prudence 30
HDFC Top 200 15
Magnum Contra 15
Reliance Growth 10
Total  100

Value Research Portfolio Manager suggests that 85 per cent of your assets are allocated to equities, 11.51 per cent to debt and the rest is in cash. Large-cap stocks account for 52.16 per cent of the portfolio, followed by 45.56 per cent allocation to mid- and small-cap stocks. None of your funds are rated below four stars. At sector and stock levels, you have achieved a good diversification, with no one sector or stock accounting for over 15 per cent and 5 per cent of the total assets, respectively. You have selected some of the finest funds and ready to wait for the long-term. Your returns expectations are high but not unrealistic. Finally, you seem to recognise that mid-cap funds could be risky and are therefore willing to shift part of their gains to relatively safer balanced funds. These are sound strategies. If you continue to follow this approach you stand a good chance to achieve your goals. If you get the desired return, your Rs 10 lakh portfolio will be worth nearly Rs 58.50 lakh at the end of 10 years.

Your portfolio looks fine for the long-term. In fact, even if you continue with the selected funds, you are likely to achieve good results. However, there's always a scope for improvement and your portfolio is no exception.

We have created another portfolio for you (see chart Suggested Portfolio). We have dropped HDFC Prudence, the top holding as per your selection. The rationale is that you are looking to stay invested for at least the next 10 years and hence can start with an all-equity portfolio. Why settle for 11 per cent debt if you stand the chance of achieving better results? HDFC Prudence is the best fund in its category and would play a role in your portfolio, but not now. Once you get nearer to your goal, attempt should be to gradually shift money to relatively safer balanced funds. But for now, it is fine to let equity funds manage all your money.


Suggested Portfolio
Funds  % Allocation
DSPML Opportunities 10
Franklin India Prima Plus 15
HDFC Equity  25
Magnum contra 15
Reliance Vision 25
Sundaram Select Midcap 10
Total  100

Next, you may find exclusion of mid-cap funds Franklin India Prima and Reliance Growth surprising. After all, they have been one of the hottest funds around for so many years. But this we have done to cut your overall mid-/small-cap exposure. At a little over 45 per cent, they have too much representation at the moment.

While we still reckon the two as good funds, we have opted for a smaller five-star mid-cap fund, Sundaram Select Midcap. However, you can easily opt for any of the two funds or both if you have strong liking for them.

The proposed list of funds will add another dimension to your portfolio. If you see you existing selection, HDFC funds account for a huge 65 per cent of the assets. Nothing wrong in it as your money will be invested across three good funds, but one should avoid this level of concentration in one AMC. The new portfolio will automatically resolve this issue and achieve diversification across six fund families and managers. Blend funds like HDFC Equity, Reliance Growth and Franklin India Prima Plus would lead your portfolio, while Magnum Contra could be your tactical position. Additionally, the mid- and small-cap allocation will come down.

Do not rush to invest. Spread out your investments over six to eight months through SIPs.