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Trim to Get Focused

My investments are spread over 18 mutual funds. Please review my portfolio and suggest ways to derive maximum benefit out of it. I am willing to stay invested for the long-term.
-Amit Bhattacharya

My investment worth Rs 1.33 lakh is spread over 18 mutual funds, including seven tax-planning funds. Please review my portfolio and suggest ways to derive maximum benefit out of it. I am 42 years old and willing to stay invested for the long-term.
-Amit Bhattacharya


Bhattacharjee's Portfolio Existing Portfolio
Funds  % Allocation
Part I  
Birla Sun Life Basic Industries 3.76
Franklin India Bluechip 7.52
Franklin India Flexi Cap 5.26
Franklin India Prima Plus 7.52
Franklin India Prima 10.52
HDFC Capital Builder 10.52
HDFC Equity 9.02
HDFC Prudence 5.26
Reliance Equity 3.76
Reliance Growth 7.52
Reliance Vision 9.02
Sub-Total  79.68
Part II  
Birla Equity Plan 0.75
Franklin India Taxshield 4.52
HDFC LT Advantage Fund 3.76
HDFC Taxsaver 3.76
Reliance Tax Saver 2.25
Templeton India Pension Plan 3.04
UTI Equity Tax Savings Plan 2.25
Sub-Total  20.33
Total  100

Value Research Portfolio Manager suggests 90.81 per cent of your asset is in equities, 3.48 per cent in debt and the rest in cash. Large-cap stocks dominate your portfolio with an allocation of 53.65 per cent, while mid- and small-cap stocks constitute 43.31 per cent of the equity assets. You have invested in three new funds, rest of your funds enjoy at least a three star rating from Value Research.

At stock and sector levels, you have achieved decent diversification. Having said that, we believe you have too much of it. Diversification is crucial. In fact, this is one of the prime reasons why small investors are suggested to buy funds. But do not take it too far. Too many funds may create manageability problem. It won't be easy to figure out which fund is pushing your returns and which one is taking it down. Moreover, a large number of funds may result in an out-of-focus portfolio that will resemble like an index fund and you will end up with average returns but with much higher cost. All we want to say is that it's possible to achieve good results with few funds, definitely much less than 18 funds that you hold at present.

Now, let's see how we can trim your portfolio to make it more focussed. While doing so, we will not add any fund but reallocate the asset to your existing funds only. Your portfolio primarily has three types of funds - equity funds, tax-planning funds and hybrid funds. Templeton India Pension Plan is a debt-oriented fund that offers tax benefit as well. Since you are ready to stay invested for a long time, we would, therefore, like to suggest you an all-equity portfolio to start with. Having said that let us clarify that HDFC Prudence is a star performer and suites any portfolio. If you have strong liking for this fund, you can stay invested.


Suggested Portfolio
Bhattacharjee's Portfolio  
Funds  % Allocation
Franklin India Prima Plus 15
HDFC Capital Builder 10
HDFC Equity 25
Reliance Growth 10
Reliance Vision 20
Franklin India Taxshield 8
HDFC Taxsaver 12
Total  100

You have seven tax-planning funds, which come with lock-in of three years. Therefore, we would like to treat your investments as two separate portfolios (see Part I & Part II) - one for funds without any lock-in and the other for tax-planning funds. But before we move ahead, let's make it clear that your existing portfolio has quality funds and many of them could be accommodated easily. But since we are attempting to reduce the number of funds substantially, we need to take some tough decisions and choose the best of the lot.

Let's rejig Part I first. You have 11 funds spread across four AMCs with three mid-cap funds accounting for nearly 36 per cent of your non-tax planning portfolio. The other funds too invest in mid and small-cap stocks, pushing your overall exposure to the relatively riskier class even higher. Therefore, in your proposed portfolio, we have substantially cut exposure to mid-cap funds. Instead, the emphasis has been laid upon funds that have freedom to invest across market capitalisations. HDFC Equity, Franklin India Prima Plus and Reliance Vision offer versatile portfolios which shift swiftly with market conditions and therefore are well-suited to form the core of the portfolio. Franklin India Flexi-cap is a similar fund but we have preferred Prima Plus for its long-term performance record. Since Flexi-cap has performed well in its short existence of around a year and since it has the same management, you can opt for it as well.

Now, let's tackle Part II of your portfolio. You have seven tax-planning funds, including the debt-oriented Templeton India Pension Plan. Since these funds come with a lock-in of three years and you would have invested at different points of time, you can't rebalance this portfolio immediately. You will have to wait for the money to get unlocked. As and when the money is available, you can consolidate this part of the portfolio to HDFC Taxsaver and Franklin India Taxshield. While the former offers a rare combination of low risk and high return, Franklin India Taxshield has a good long-term track record, quality portfolio and management depth. You will have to treat Templeton India Pension Plan differently because redemption before you attain the age of 58 years would amount to paying exit load. Therefore, you can let it remain in the portfolio. And as your goal nears, start tilting your all-equity portfolio in favour of debt funds.