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Move Out of New Funds

Most of my fund investments are through SIPs, which I plan to continue for five years. Any suggestions on improving the quality of my portfolio? What would be the value of my portfolio 10 years down the line?

I have been investing in mutual funds since October 2005. Most of my investments have been through the SIP route. Apart from lump sum investments in some funds, I plan to continue investing through SIPs for five years. I am investing with a time frame of 8-10 years for my daughter. Please review my portfolio and give me an estimate of the value of the portfolio 10 years down the line. Also suggest the measures to improve the quality of my portfolio.
- Deepak Mehta


Existing Portfolio
Funds  % Allocation
Franklin India Bluechip-D 5.60
Franklin India Flexi Cap-G 5.26
Franklin India Prima Plus-G 5.43
Franklin India Smaller Companies-D 10.74
HDFC Equity-D 9.17
HDFC Long-term Equity-G 14.84
HDFC Prudence-D 8.63
Pru ICICI MIP-G 8.99
Pru ICICI Tax Plan-D 9.34
Reliance Equity-G 8.85
Reliance Vision-D 4.76
Standard Chartered Classic Equity-G 4.69
Sundaram BNP Paribas Select Midcap-G 3.70
Total 100.00

The Value Research Portfolio Manager suggests that your current portfolio has an equity exposure of 85 per cent while 7.5 per cent is in debt. Given your time horizon of 8-10 years, an equity heavy portfolio is fine. The investments are also fairly distributed across the funds of different fund houses.

The only concern is that a substantial amount of your money is invested in new funds. Even though a majority of your funds have a five- or four-star rating, but the lump sum investments made in the relatively new funds has distorted the overall allocation. Because of this, a substantial 44 per cent of your total investments are concentrated in funds that are not rated by Value Research. A bit of fine tuning in your investments at this end will make your portfolio look healthy.

The Road to Revamp
In our opinion it is better to invest in those funds that have been around for some time and have proved their worth rather than investing in brand new offerings.

In our suggested portfolio, we have eliminated Franklin India Flexi Cap and Reliance Equity. This money has been shifted to the well-established funds of the same fund houses- Franklin India Prima Plus and Reliance Vision (both are already present in your portfolio).

Apart from that, we have also transferred the investments from Standard Chartered Classic Equity Fund to HDFC Equity Fund. Standard Chartered Classic Equity Fund has remained a laggard and you should exit this fund.

HDFC Equity, on the contrary, is one of the most suited funds to play the lead role in any equity portfolio. Therefore, this five star fund deserves to manage more than its present allocation of less than 10 per cent in your portfolio.

By doing these changes, your portfolio would get into better shape. While diversity at the fund house level is retained, the portfolio has a higher allocation in long term winners which are suitable to form the core.

Even though two other new funds- Franklin India Smaller Companies and HDFC Long-term Equity constitute a significant part of your portfolio, we have still kept them in the portfolio because exiting them now will inflict you with heavy loads and charges (apart from capital gains tax). For redemption within the first year, both charge a steep exit load of 4 per cent.

Therefore, it makes sense to leave them untouched for the time being and track their performance closely. Moreover, their relative proportion in the portfolio will also come down gradually, as you will continue to invest through systematic investment plan in other funds.

We have retained your existing allocation to Prudential ICICI Tax Plan. But depending upon how much you need to invest in an equity-linked savings scheme (ELSS) to save taxes, you can make the necessary changes. This fund happens to be quite aggressive in its investing style, but it has also generated good returns. But if you plan to increase the proportion of ELSS funds in your portfolio, consider adding another good ELSS fund.

As regards your query about the expected value of your portfolio 10 years down the line, predicting any arbitrary figure will purely amount to speculation. All we can say at this moment is that given the performance record of these funds, you are likely to do better than the markets at large.

Moreover, the risk in equities gets significantly reduced over a long-term horizon of 10 years, while their potential to generate maximum returns remains intact. Therefore, keep investing regularly without worrying too much right now.


Suggested Portfolio
Funds  % Allocation
Franklin India Bluechip-D 5.60
Franklin India Prima Plus-G 10.69
Franklin India Smaller Companies-D 10.74
HDFC Equity-D 13.86
HDFC Long-term Equity-G 14.84
HDFC Prudence-D 8.63
Pru ICICI MIP-G 8.99
Pru ICICI Tax Plan-D 9.34
Reliance Vision-D 13.61
Sundaram BNP Paribas Select Midcap-G 3.70
Total 100.00