I don't have much knowledge about mutual funds, but I have made some investments based upon the advice from my brokers. However, except for a couple of funds, the performance of others has not been impressive. Kindly advice me about the changes I need to make in my portfolio.
- Vijay Pal Singh
| ||||||||||||||||||||||||||||||||||||||||||
Don't lose heart over the unimpressive returns from some of your funds. Actually, it has more to do with the timing of your entry in these funds, than their performance. Many of your investments were made in March this year, not long before the markets collapsed. Obviously, the impact on your portfolio would have been noticeable for a while.
But you haven't been all that unlucky after all! Firstly, the recovery in the markets has ensured that your funds regain their lost value. And secondly, excellent performance of your top holding- Prudential ICICI Infrastructure (52 per cent allocation) would have well covered for the unimpressive returns from other funds. The fund has been in top form over the last one year and this coincides with the time when you invested in the fund (investment was made in October last year). Having said this, there is a plenty of room to make amends. Let us start by pointing out the things which are worrisome about your portfolio.
Heavy Concentration
Even though your top holding has delivered handsome returns, but having over 52 per cent of your money in a single fund is definitely not an ideal situation to be in. Hard as it may seem, but you should cut down on your investment in Pru ICICI Infrastructure. Luckily, Pru ICICI Infrastructure has done well delivering around 66.55 per cent one-year return.
Too Much in New Funds
A lot of your money is invested in funds that are quite new (74 per cent in unrated funds) and are yet to prove their worth across the market cycles.
Lack of Core Holdings
Ideally, funds with a long-standing track record of good performance and a flexible investment style should lead a portfolio. But in your case, not only are many of your funds new, but they are also quite narrow in their investment approach (funds pegged upon themes like infrastructure, power and dividend yield).
Plan of Action
We will suggest you an alternate portfolio to address the above issues. In our suggested portfolio, we have eliminated three funds altogether- Principal Infrastructure & Service Industries (you already have too much invested in infrastructure theme), Birla Dividend Yield Plus (which has been a laggard) and Standard Chartered Enterprise Equity. We think it will be better if you invest in initial public offers of companies on your own rather than through a fund. Therefore, you can redeem your investment from this fund and hold it in your bank account to bid for any promising stock IPOs that come your way. You will get the liquidity window at the end of December to exit this fund.
Apart from that we have significantly reduced the allocation to Pru ICICI Infrastructure. Together with Reliance Diversified Power, the infrastructure related theme will have a 16 per cent allocation in our suggested portfolio, which is adequate for a theme in vogue. Remember, your other funds have also some investments in similar stocks, and that will also add to your exposure to this sector.
We have also reduced allocation to Pru ICICI Dynamic. Its performance record has been chequered so far and that is why it is rated only two-star. But given its good run in the recent times, you can continue to remain invested to the extent of 10 per cent. Similarly, we have retained your remaining funds in the wake of their decent performance record so far, even though they are new.
All this money has been diverted towards funds suitable to play the lead role- Franklin India Prima Plus, HDFC Equity and Magnum Contra. We have also added two mid-cap funds - Sundaram BNP Paribas Select Midcap and Magnum Global - to retain the aggressive stance of your portfolio. Should you want to tone it down, invest in DSPML Opportunities instead of the above two.
With these changes, we will achieve our objectives of focussing upon the core funds while reducing the proportion of new funds, and eliminating a high degree of concentration.
Going forward, invest through the systematic investment plan (SIP) to save yourself from disappointment in case markets fall soon after your investment. And keep monitoring the performance of your funds, particularly the infrastructure and power sector ones. You should stay invested in a theme only so long as the theme is performing, but exit soon after it goes out of favour.
| ||||||||||||||||||||||||||||||||||||||||||||||||
This article was originally published on February 09, 2007.
Ask Value Research 
New episodes every Friday 
New Process Alert 
Seems like you've uploaded a wrong QR code. Please upload the QR code downloaded from MF Central platform.
