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Portfolio Makeover: Say No To NFOs

I have been investing in MFs since August 2005. How is the quality of my portfolio? I want to trim the number of funds since it is difficult to monitor all of them. My investments are made with a time horizon of 5-15 years. I want to invest only in equity schemes as I already have other investments in debt instruments.

I have been investing in MFs since August 2005. How is the quality of my portfolio? I want to trim the number of funds since it is difficult to monitor all of them. My investments are made with a time horizon of 5-15 years. I want to invest only in equity schemes as I already have other investments in debt instruments.
-P Sanjay Kumar

To put things in perspective, Rs 8,37,000 invested by you has accumulated to an Rs 11,28,000, not counting dividends of nearly Rs 43,000 that you received. You achieved this in a matter of two years. While your strategy has fared well, you could boost performance by consolidating your holdings.



P. Sanjay Kumar's Portfolio
Funds  % Allocation
Birla Infrastructure  2.73
Birla Sun Life Frontline Equity  1.83
Birla Top 100  3.24
Fidelity Equity  1.91
Fidelity India Special Situations  18.07
Fidelity Tax Advantage  2.26
Franklin India Flexi Cap  9.60
Franklin India Smaller Companies  2.98
HDFC Long-term Equity  2.11
HSBC Advantage India  3.46
Magnum COMMA  1.33
Magnum MultiCap  3.18
Magnum Multiplier Plus  0.45
Magnum Taxgain 6.73
Principal Large Cap  4.64
Reliance Equity  2.12
Reliance Tax Saver  2.71
Reliance Vision  1.11
SBI Bluechip  2.13
Sundaram BNP Paribas Rural India  7.87
Sundaram BNP Paribas S.M.I.L.E.  0.75
Sundaram BNP Paribas Select Midcap  0.42
Tata Tax Advantage 1  1.37
Templeton India Equity Income  11.44
UTI Auto Sector  0.88
UTI Banking Sector  0.98
UTI Infrastructure  1.45
UTI Leadership Equity  2.25
Total  100


Lure Of NFOs
We noticed a very discernible strategy adopted by you which is to invest essentially in NFOs. There are many pitfalls of excessive reliance on NFOs. Given that not a single equity fund has lost money over the past year, you have been fortunate not to have made any losses. A stable performance over a period of time is a good indicator of the fund quality. NFOs usually take some time in finding ground. There is also a risk of deployment of money in a bull phase.

Leave These Alone
Funds listed under PART II have been retained in their current proportions for now due to the lock-in periods and/or high exit loads. Your tax-planning funds account for a 13 per cent weightage and are spread across four funds. Any future ELSS investments should be restricted within these funds. Magnum Taxgain in fact wins over the other three with its stellar performance; it has been ranked number one in its category for the last five years. Reliance Tax Saver is another scheme that has shown promise in its 18-month existence. Similarly, investments in close-ended NFOs has not entered the consideration set, primarily due to the high loads you would incur if you exit now.

Spiff It Up
We have reduced the number of funds from 28 to 15 that have a proven track record. While your exposure to new unrated funds continues to be on the higher side, we have picked the best of the lot here.

There is scope for consolidation in the two infrastructure funds. The sector has shown promise over the last year. We have hiked the allocation to UTI Infrastructure and dropped Birla Infrastructure. Your total exposure to funds that have a large-cap mandate is close to 22 per cent spread across eight funds. We have given preference to Birla Sun Life Frontline Equity, Fidelity Equity, Franklin India Flexi cap and Reliance Vision to form the core of your portfolio.

Your total investments in thematic funds is a whopping 43 per cent! We have reduced this to 13.5 per cent spread across two funds. The mandate of Sundaram BNP Paribas S.M.I.L.E is to invest 65 per cent of its assets in small and mid cap stocks making it very similar to Sundaram BNP Paribas Select Midcap. We suggest you switch to latter. While we have retained Templeton India Equity Income, we suggest you keep a close eye on the fund. The strategy of a dividend yielding stock portfolio has not worked of late and will reveal its success or failure over time. But the charm of this fund lies in the fact that it also invests in markets abroad, thus adding a new dimension of diversification to your portfolio. Further, avoid investing in NFOs and thematic funds in future.



Suggested Portfolio
Funds  % Allocation
PART I  
Birla Sun Life Frontline Equity 10.02
Fidelity Equity 11.90
Franklin India Flexi Cap  12.02
HSBC Advantage India  3.47
Principal Large Cap  4.60
Reliance Vision  11.88
Sundaram BNP Select Midcap  9.76
Templeton India Equity Income  10.02
UTI Infrastructure  8.02
Sub Total  81.69
PART II  
Fidelity Tax Advantage  2.24
Magnum Taxgain 6.74
Reliance Tax Saver  2.72
Tata Tax Advantage 1  1.40
HDFC Long-term Equity  2.16
Franklin Smaller Companies  3.05
Sub Total  18.31
Total  100