The Hindu Business Line : Fund Talk

I am an employee aged 41 with salary of Rs 2.4 lakh per year. I have about Rs 11 lakh in mutual fund portfolio. My investment time horizon is 20 years. I am saving for retirement. I am saving Rs 6,000 per month through SIP in HDFC TaxSaver. I have enough investments in provident fund, insurance and NSC. Kindly review my portfolio. I have a long-term outlook and not worried about market ups and downs. My Portfolio is: ICICI Pru Emerging Star 10.8 per cent, ICICI Pru Dynamic 5.4 per cent, Magnum Contra 20.5 per cent, Magnum Global 9.1 per cent, Magnum Taxgain 14.0 per cent, Reliance Growth 19.8 per cent, Reliance Equity Opportunities 5.7 per cent, HDFC Equity 8.3 per cent, HDFC TaxSaver 6.4 per cent.

J. Bhattacharya

You seem to have chosen your funds well, going by the fact that a good number of them have a solid performance track record. However, there are a few concerns that we have on the allocation you have made to individual schemes and also the size of your mutual fund portfolio. First, since your allocation to equity mutual funds is already high in proportion to your salary income, we suggest that you continue to invest in other debt options either through the mutual fund route (using fixed term plans or balanced funds) or otherwise. Given the long-term nature of your goal and your risk tolerance (going by the fact that you are not worried about volatility) you can try and maintain equity allocation at 60-70 per cent of your total funds.

Coming to your choice of funds, we find that close to 40 per cent of your money is invested in mid- and small-cap funds (Magnum Global, Reliance Growth, ICICI Pru Emerging S.T.A.R). Further your tax-saving funds, Magnum Taxgain and HDFC TaxSaver, although titled towards large-caps now, have shown a bias for mid-caps in the past. They alone account for 20 per cent of your portfolio.

While Reliance Equity Opportunities and ICICI Pru Dynamic have the flexibility to shift across market-caps, only HDFC Equity and Magnum Contra (14 per cent of your portfolio) can be termed as truly diversified funds. Hence, your core portfolio consists of mid-caps with well-diversified funds taking a back seat. It is essential for every portfolio to have a strong nucleus, which is not only well diversified but has demonstrate ability to sort through various market phases. While mid-caps no doubt add wealth to the portfolio over the long-term, they are also more prone to long periods of underperformance.

Hence we suggest you increase your exposure to HDFC Equity, Magnum Contra and additionally HDFC Prudence (a balanced fund) to at least 40-50 per cent of your portfolio. Prune your holding in mid-caps (book profits from the three mid-cap funds you hold and direct them to the core funds mentioned above) to 20-30 per cent and allocate the rest between the flexi-caps and tax-saving options you hold.

If you are looking at HDFC TaxSaver as an investment option rather than a tax-saving option then, consider pruning the amount of SIP per month, as the core funds you hold, have demonstrated superior performance. Further, it is not very prudent to run high risk of losing capital for the purpose of saving taxes. We suggest that while going for investments for claiming deduction under Sec 80C of the Income Tax Act choose a combination of traditional debt options (that offer capital protection) along with ELSS.

As the current market appears to reflect volatility, do not be in a hurry to re-jig your portfolio at the cost of booking losses/heavy exit loads. You could consider doing the above in phases. Finally, review your portfolio at periodic intervals and exit funds with sustained underperformance (in relation to benchmark and peers) lasting several quarters.

Vidya Bala

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

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