The Hindu Business Line : Fund Talk

I am a regular investor in mutual funds. I invested in Franklin India Tax Shield, Franklin Bluechip, Franklin Prima, Franklin India Opportunities and Franklin Infotech in year 2000, HDFC TaxSaver in 2001, HDFC Long Term Advantage fund in 2002 and in Birla Sun Life Tax Relief 96 in 2002. I also invested in the NFOs of Reliance Diversified Power Sector Fund, Franklin Smaller Companies close-ended fund, Fidelity Tax Advantage Fund and Standard Chartered Enterprise Fund. I invested in Franklin Templeton Pension Plan Fund long ago. I am not a conservative investor. Please comment on my portfolio. I do not want to book profit for the next 10-15 years till my retirement.

Babita Singh

Meerut

Your decision to stay invested across market cycles has certainly paid off with the market and equity funds in particular delivering multi-fold gains over the period. However, it appears that most of your investments have not been made in a disciplined manner. Rather it has been done in spurts, as and when you came into some money. This is reflected in your portfolio as well.

Most of the funds appear to be one-off investments. Your allocation to funds does not appear to follow any fixed pattern. Some funds account for a disproportionate share of your portfolio. While we believe that most of the funds you hold can be retained, your portfolio lacks a balanced profile and needs to be re-jigged. This will have to be done gradually.

Plan your future investments taking into account a fund's track record, risk profile and your financial goals. A well-constructed fund portfolio would typically consist of a mix of large- cap and mid-cap- focused diversified funds with a good track record. Theme or sector funds should form a small portion — say, 10-15 per cent — of the portfolio.

You can consider investing through systematic investment plans as opposed to lumpsum investment. This will bring a disciplined approach to investing and make it easier for you to balance your investments across funds.

Your choice of funds now appears to be guided by the prominence of the fund house; seven of your funds are managed by Franklin Templeton. While the house reputation is important, rarely do all funds from a particular stable perform well simultaneously. Even if they do, you miss out on the diversification offered by different investing styles and are also exposed to changes in management. Try not to hold more than three funds from a particular fund house in your portfolio.

Second, most of your recent investments have been in new fund offers. The funds that you have chosen have unique investment themes. The sums invested are, however, substantial and none of these funds should really be a part of your core portfolio. Try to gradually reduce your exposure to these funds. You are heavily invested in Standard Chartered Enterprise Equity, which seeks to invest in IPOs and earn returns from listing gains. The conditions for the primary market have been less conducive since the launch of the fund. The fund allows investors to redeem their units on the last working day of the calendar half year. You may use that opportunity to pare your exposures to the fund, even though it would involve an exit load.

Sector funds such as Franklin Infotech and Reliance Diversified Power are suitable for investors who have a good understanding of the respective sectors. You can hold on to these funds for now as the outlook for the sectors is bright. However, you do need to actively book profits on these funds, as the bulk of the returns from such sectors are normally earned in a short period.

Finally, your decision to not book profits until you retire is inappropriate. As you approach retirement, you must reduce your allocation to risky assets such as equity by booking profits and sweeping the proceeds into safer debt options. Also, while it is important to stay invested in the market through its ups and downs, you do not need to stick to the same fund. It is important to evaluate your portfolio periodically to check if the returns are in line with your target. Weed out underperformers and book partial profits on some funds where returns have been exceptional and are unlikely to be repeated.

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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