The Hindu Business Line : Too many new funds

I am a professional, aged 55 years. My mutual fund investments are given below. Kindly suggest whether it is advisable to redeem (fully or partially) the funds that are doing very well now, or wait for the NAV to go up further. What other funds do you recommend for further investments? Is it advisable to make additional investments in existing schemes?

The funds I own are: Prudential ICICI Emerging Star Fund, Kotak Mid-cap, Reliance Diversified Power, Fidelity Equity fund, HDFC Premier Multicap fund, Birla Dividend Yield Plus, SBI Magnum COMMA fund, Standard Chartered Classic Equity, Prudential ICICI Infrastructure fund, Reliance Tax Saver, Sundaram Capex Opportunities fund.

S. Srinath

Bangalore

IT may be advisable to book profits on a significant part of your portfolio.

If you are planning to retire at 58 and have financial commitments immediately thereafter, you may require a significant part of your savings within the next 3-5 years. Since all of the investments you have outlined are equity funds, a big portion of your savings is exposed to the risks of stock market investing.

After the stellar appreciation of the past two years, the risk of a significant correction in values or a prolonged period of flat NAVs cannot be ruled out. Therefore, it may be advisable to lock into your present gains, by booking profits on equity funds. Pull out any money that you require over the next two-three years from such funds. This would be true for most investors in equity funds.

In your case, your investments seem more vulnerable because of the choices of funds that you have made, the timing of these investments (the bulk of your investments have been made over the past six months) and the fact that you invested in lump-sums, instead of in a phased manner.

From the list of funds that you own, it is clear that you've been regularly buying into new fund offers, without discriminating between different kinds of funds — sector, theme or diversified funds. This is a risky approach to investing.

Investing in a new fund is usually more risky than investing in an established one that has fared well through a complete stock market cycle. With the latter, you have some idea of how the fund manager or the particular investment strategy will handle a declining or a flat stock market. A lump-sum investment is similarly more risky than phased investments, as the former are made at just one particular level of the Sensex.

Your investments also include several sector and theme-based funds, where your returns will depend on a good sense of timing and active profit-booking on your part. We suggest:

Hold on to the funds that you have entered in August/September, as it would be too early to take any action on these funds. Book profits on these funds once they reach a target of 10 per cent.

Consider booking profits in funds such as PruICICI Emerging Star Fund, Reliance Diversified Power, Kotak Midcap. Though these funds have delivered good returns, they are theme-based funds and may require an active approach to profit-booking on your part.

Retain Fidelity Equity, HDFC Premier Multicap, Birla Dividend Yield Plus and Standard Chartered Classic Equity Fund, given their diversified profile. However, Fidelity and Standard Chartered do not have a long-term track record in equity investments, and their performance would have to be watched closely for that reason. You can retain Birla Dividend Yield Plus in light of the fund's defensive orientation.

Established diversified equity funds with a five-year record should be the core of your investment portfolio. HDFC Top 200 Fund, Franklin Bluechip Fund and SBI Magnum Contra may be some of the funds worth considering. You can keep adding to your investment in these funds whenever you have a surplus.

Keep a regular check on your asset allocation. Check how much of your savings, at any point in time, are invested in equity funds. If you are concerned about capital erosion, keep this proportion at 20 per cent or less.

(Queries may be e-mailed to mf@thehindu.co.in, or sent by post to Business Line, 859-860, Anna Salai, Chennai 600002.)

Aarati Krishnan

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