The Hindu Business Line : Fund Talk

I am 45 years and have two daughters who are studying. I have been investing in mutual funds through SIPs for the last two years. I want to continue to invest in low risk and high return funds. Kindly advise me as to which funds I can continue. I have the following funds with an SIP of Rs 1000 per month: Magnum Comma, SBI Bluechip, Magnum Multicap, Magnum Contra, Reliance Equity Opportunities, Reliance Equity, Sundaram Capex Opportunities and Sundaram India Leadership, Birla Infrastructure, Birla Top 100, HSBC Advantage fund, Kotak lifestyle, UTI Leadership Equity, HDFC Prudence, Tata Midcap and Tata Infrastructure and FT India Balanced.

K. Swamy

It is good to know that you have been using the SIP route to invest in mutual funds. Your present basket of funds, however, suggests that you need a more compact and manageable portfolio, with a strong nucleus that would see you through various market phases.

You have been adding too many funds to your basket, resulting in duplication of investing styles and stock/sector holdings. This would also lead to hassles in managing your portfolio, thus defeating the very purpose of investing in mutual funds. Further, we do not see any specific strategy in your investing style. We would like to shuffle your portfolio to remove the above anomalies.

We assume that you are a long-term investor as you have stated that you wish to continue your investments through the SIP route. You have 17 funds, of which three (SBI Bluechip, Reliance Equity and Birla Top 100) are large-cap focussed funds. There are five theme/sector funds, two balanced funds and the rest are diversified/go-anywhere funds. All of your funds barring Magnum Contra and the balanced funds do not have sufficient track record to determine their performance across bull and bear markets.

We suggest that you exit the three large-cap funds in a phased manner and instead add DSPML Equity and Sundaram BNP Paribas Select Focus. Please retain Magnum Contra Fund. These three funds put together would provide you exposure across various market cap segments.

The two balanced funds have performed reasonably well and their debt component would limit your downside during volatile markets. These five funds can form the core of your portfolio. Continue to use the SIP route to invest over a period of three to five years. Of the other diversified funds, Magnum Multicap has been an underperformer. We suggest you exit the fund. Sundaram India Leadership and UTI Leadership have similar objectives. As the former possesses a better track record retain it and exit UTI Leadership. HSBC Advantage India’s performance has been average. However, it is unlikely that you would gain in terms of any unique investment style by holding on to it. We suggest you book your profits in that fund. Exit Tata Midcap as it has been an under-performer.

You have mentioned that you wish to invest in low-risk and high-return funds. If only that were possible! High returns (and quite often high losses) ride on the back of higher risks taken. For instance, you would have observed that infrastructure funds in your portfolio would have delivered the highest returns. But being thematic funds, where entry and exit need to be well-timed, these funds carry high risks. So also the case with your commodity fund Magnum Comma (which has run up on the back of the metal rally) and the consumer theme fund, Kotak Lifestyle.

If you are game for such risks and can actively track these sectors and identify the boom phase and the decline phase, you may hold on to them. But it may not be necessary to hold three infrastructure and capital goods theme funds. You can hold Sundaram Capex Opportunities which is relatively more diversified and exit the rest as you would only be duplicating stocks by holding on to all three. You can consider holding on to Magnum Comma and Kotak Lifestyle but avoid SIPs and stop your present investment. If the funds form over 10 per cent of your current portfolio then book profits proportionately.

In general, SIPs may not work too well with theme funds that are currently in favour. As theme fund investing is more about timing and less about phased investment, you would be better off allocating a small lumpsum in such funds, provided you can identify the point of take off for the theme.

If you decide to hold on to theme funds, ensure that they are not more than 15-20 per cent of your portfolio. While this is not a thumb rule, we are suggesting this so that you can contain risk.

Vidya Bala

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