The Hindu Business Line : Fund Talk

I have an SIP of Rs 2,000 each in Magnum TaxGain, PruICICI Tax Plan, Sundaram Select Midcap, Magnum Contra and Franklin Prima. I have a five-year horizon. But should I churn my portfolio every year? If so, based on what criteria? If I do so, then will I not lose the benefit of compounding? Franklin Prima has not delivered anything in the last 18 months I have been investing. Its returns are a mere 5 per cent. Should I shift to Magnum Global or Reliance Growth? Please advise.

Satwinder

If you have a five-year horizon, you certainly must be invested in the market over the entire period. But you need not remain a passive investor the whole time. You need to monitor performances of the funds you hold and of competing funds, periodically re-assess your financial goals and requirements and make changes to your portfolio accordingly.

For instance, you could step up your allocation to mid-cap funds, if mid-cap stocks are beginning to look up. You could diversify your portfolio to include funds that have a unique investing style. You could cut exposures to sector funds if you feel the sector is losing its fancy. Based on performance, you may decide to increase your investment in a particular fund or suspend an SIP on another.

Such active management of portfolios has the potential to significantly enhance returns, but it calls for greater spadework and informed investing. But abrupt changes in your portfolio could prove expensive and counter-productive.

Right at the outset of building your portfolio, choose diversified funds with a strong track record that will make up the core holdings of your portfolio. Such funds will account for at least 65-70 per cent of your overall fund portfolio and must reflect your financial goals and your risk appetite. These funds should be retained over a longer period, at least three years. The remaining funds could be those intended to diversify your fund portfolio or to capitalise on a particular theme. These could be churned more actively.

For your core portfolio, take stock of performance periodically. Funds that enjoy a strong five- year track record do not always feature at the top of the ranking lists over a one-year period. They enjoy a good track record more because of their consistency of performance across market phases rather than a one-off great performance. If you hold such funds, do not be perturbed by their relative underperformance to peers over a short period.

However, you should consider booking profits on a fund if it has underperformed its benchmark for more than a year. You should also watch out for changes in fund's management, changes in investment objectives or if a fund fails to abide by its mandate.

Finally, as the value of your portfolio swells, ensure that your overall equity allocation does not exceed levels that are out of sync with your risk appetite. Periodically book profits partially on your portfolio and sweep it to safer investment avenues.

Franklin Prima has suffered a sharp setback in performance over the past year and has significantly underperformed its benchmark, the S&P CNX 500 over this period. The fund's tilt towards mid-cap pharma and underweight in capital goods stocks may explain its underperformance. If performance in mid-cap stocks pick up, the fund's performance is likely to pick up as well. Its strong track record also inspires confidence. However, you could avoid fresh exposures to the fund for the time being. You can continue investments in Sundaram Midcap and PruICICI Tax Plan. Reliance Growth and Magnum Global are also good options.

Queries may be e-mailed to mf@thehindu.co.in,

or sent by post to Business Line, 859- 860, Anna Salai, Chennai 600002.

Shanthi Venkataraman

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