The Hindu Business Line : Fund Talk

I am currently investing in the following funds through SIP to form my core portfolio: Franklin Blue Chip (G) 18 per cent; HDFC TOP 200 (G) 16 per cent; HDFC Equity (G) 10 per cent; Templeton India Growth (G) 10 per cent; HDFC Prudence (G) 10 per cent; Reliance Growth (G) 8.5 per cent; Reliance Vision (G) 8.5 per cent; HDFC Capital Builder (G) 5 per cent; Magnum Contra (G) five per cent; Franklin Prima (DR) 5 per cent; Sundaram Midcap (DR) 5 per cent; HSBC Equity (G) 2 per cent; Birla Sun Life Basic (DP) 2 per cent.

I have made lump-sum investments in Sundaram S.M.I.L.E, Franklin India Opportunities, Magnum Global, PruICICI Emerging S.T.A.R, Franklin Flexicap, HDFC Multi-Cap Fund, Sundaram CAPEX Opportunities, Reliance NRI Equity, Tata Infrastructure, Tata Contra, Tata Midcap, Magnum Midcap, Magnum Multicap and Reliance Equity. I am planning to book profits in the new funds and shift to established funds or partly even to other debt/MIP funds as long-term investments and trim down the entire portfolio to a maximum of 12 funds. I am a moderate risk-taking investor with sufficient bank deposits, aged 35 and an NRI. Please evaluate my core portfolio and percentage allocation. What are the funds I should phase out to trim the portfolio? Do I need to consider debt/ MIPs also? What CAGR can I expect over the next four to five years?

Sreenivasan

You have chosen the right funds for your core portfolio, as they all have a strong track record. The portfolio bears a tilt towards large-caps, which has probably paid off well over the past year. As you have a moderate risk appetite, you could consider gradually stepping up your allocation to mid-cap funds.

Though mid-cap stocks could face greater volatility in the near term, they would add value to your portfolio over a longer period. You should try to achieve a 70:30 mix in favour of large-cap funds.

You can enhance your exposure to Sundaram Midcap, to begin with, and maintain exposures in Prima and Reliance Growth. As you intend to continue your SIPs in these funds over the next four years, ensure that you track them regularly. Before renewing your SIPs, take stock of recent performance and shift allocations judiciously between the funds in order to maximise your returns.

However, some of the benefits that your core portfolio may reap from the established funds will be counteracted by the addition of lumpsum investments in NFOs. With 13 funds in your core portfolio alone, and a host of recently launched funds, maintaining a constant vigil on performance can be cumbersome. Sticking to established funds narrows your investment basket to a manageable few.

For this reason, your decisions, both to trim your portfolio and to focus on established funds, are appropriate. Do not book profits, however, in one sweeping decision. This may expose your returns to the risks of bad timing and lead to opportunity loss in some cases. You would also be stuck with the problem of re-investing a large sum of money immediately.

For now, apart from your core funds, you may consider retaining Franklin India Opportunities, Magnum Global and among the new funds, PruICICI Emerging S.T.A.R and Franklin India Flexicap. Given the current volatility in the market, it would be better to stick to diversified funds.

Pare exposures in sector or theme funds such as Sundaram CAPEX Opportunities and Tata Infrastructure. Check if the funds offer a systematic withdrawal plan, which will allow you to book profits in these funds in a phased manner. Book profits in Reliance NRI Equity, which has underperformed the market. Switch your holdings in HDFC Premier Multi-Cap in favour of HDFC Top 200 or HDFC TaxSaver and Sundaram S.M.I.L.E to Sundaram Midcap. Over the next couple of months, you can systematically transfer your investments (perhaps through STPs) in Tata Contra and Tata Midcap to Tata Equity Opportunities.

You have not mentioned whether you hold investments in small saving schemes and other debt instruments. You must allocate some portion to debt, but the proportion can vary depending upon your risk profile. In a rising interest rate scenario, long-term debt funds will not be a good option. You can temporarily park funds that you receive from profit booking in money market funds and floating rate funds, as they now promise better yields.

You could also step up your allocation to balanced funds such as HDFC Prudence and SBI Magnum Balanced Fund. Equity investments may deliver on an average about 4 to 5 per cent more than debt over a five-year holding period. If you are aggressive on equity, however, you must be prepared for a greater degree of volatility. Tone down your return expectations from equity to 10-12 per cent annually, as the spectacular rally witnessed over the past three years is unlikely to repeat itself.

Shanthi Venkataraman

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