The Hindu Business Line : Fund Talk

I own the following equity funds: LIC Opportunities, Principal Infrastructure & Service Industries Fund, UTI Infrastructure, Birla Top 100, Kotak Contra, Standard Chartered Classic Equity, Sundaram BNP Paribas CAPEX Opportunities Fund, UTI Leadership Equity, Reliance Growth, Franklin Flexi Cap, Templeton India Equity Income, Franklin Prima Plus and SBI One India Fund. Which of these can I retain for the long term?

Kiran Panday

The profile of equity funds suggests that you may not have been investing to a well thought-out plan. When you decide to invest in equity funds, it is necessary to assess the degree of risk you can assume and the returns that you are targeting through your investment.

These two factors decide whether, and in what proportion, you should own plain diversified funds, theme funds and aggressive funds such as mid-cap funds.

An investor with a high return expectation, say over 25 per cent per annum over a long period, may need to own theme and mid-cap funds in addition to plain vanilla diversified funds to boost his returns. On the other hand, if you target a 12-15 per cent annual return, this can be attained by holding a portfolio of diversified equity funds alone.

You haven’t mentioned your risk profile or return expectations. But assuming you have an average risk appetite and seek a 12-15 per cent annual return from your investments, we have the following suggestions on your portfolio:

Owning as many as 13 equity funds will make it difficult for you to keep track of the performance of your holdings and weed out under-performers when necessary. We suggest you prune the number of funds to 4-5 for easier monitoring and management. You could book profits on some of the fund and re allocate the proceeds to the funds we suggest here.

You have several theme funds focused on the infrastructure sector. These funds may have delivered good returns over the past year, while this particular theme has been in fancy.

But it also exposes your portfolio to significant downside if there is any slackening in the sector’s prospects over a 5-year horizon. Of the various theme funds in your portfolio, we suggest you retain Sundaram Capex Opportunities as it is more sharply focused on the infrastructure theme.

Of the diversified equity funds that you own, you should probably retain Franklin Flexicap Fund (a fund which invests across various market cap ranges), Reliance Growth (a diversified fund with a mid-cap bias) and Franklin Prima Plus (a diversified fund with a large cap bias. Each of these funds has a good five year track record of performance and has also delivered good one year returns.

Templeton India Equity Income Fund can be retained because it provides diversification in overseas markets with a “value” bias, which restricts downside risks. You could switch your holdings in SBI One India Fund (a relatively new fund) to Magnum Multiplier Plus from the same fund house, as the latter is an established fund with a good return record.

In future, we would also recommend that you route your equity investments through established open-end funds with a good track record over a 5-10 year period. Avoid investing a large portion of your surplus in new fund offers, as you have very little to go by, while evaluating them for investment decisions.

AARATI KRISHNAN

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