The Hindu Business Line : Fund Talk

I hold the following funds: Morgan Stanley Growth Fund, Franklin India Smaller Companies-D, HDFC Long Term Equity-D, Magnum Multiplier Plus-G, Fidelity Equity- D, Magnum COMMA-D, Reliance Tax Saver-D, Franklin Bluechip-D, Reliance Growth-D, Reliance Equity-D, UTI Mastershare-G, Franklin India Taxshield-D, UTI MEPUS, Franklin India Prima –D, HDFC TaxSaver-D.

The investments in MSGF (30 per cent of my portfolio) were carried out earlier when much higher differential between NAV and CMP was available and as a part of a defensive strategy. My ‘MF Schemes’ portfolio objective is to grow maximise value for the long term, beyond 10, 15 or 20 years. It is time for me to shuffle the portfolio as it has become unwieldy with too much diversification. Further, I am not dependent on the income derived by way of dividends from the MF Schemes. May I request you to kindly review the portfolio and let me have your comments/ advice please.

R.V. Joshi

As you have pointed out, your portfolio does have too many funds. This makes keeping track of fund performances and tweaking your portfolio in tune with your target return rather difficult. Most funds in your portfolio have a strong track record over a five-year period. However, even some of those have slipped in performance over the past year or two and you might have to re-balance your portfolio to weed out the underperformers. But with a chunk of your investments in close-ended funds, there is not much room to make big changes in your portfolio at this juncture. A large holding in Morgan Stanley Growth fund exposes your portfolio to the risk of any underperformance by this single fund. However, as you have already purchased the fund at a good discount and the close-ended fund is due for redemption in early 2009, you may hold on to it.

Both Franklin India Smaller Companies and HDFC Long Term Equity are recently launched funds and it is too early to comment on their performance. So far, they have not notched a significant mark. Monitor their performances and use the exit window that is available at periodic intervals to redeem your investments if the funds underperform their peers. You can redeem your investments in UTI MEPUS. In future, avoid investing in close-ended funds. The category on an average has largely underperformed their open-ended peers. If you are truly a long-term investor, with the discipline to stay invested through market cycles, (which appears to be the case, judging by your willingness to lock in money in close-ended funds) you are better off sticking to open-ended funds. This way, you have the freedom to redeem or switch your investments if the performance of a fund suffers over a prolonged period.

Fidelity Equity, Magnum COMMA and Reliance Growth continue to be good choices and can be retained in your portfolio. We suggest switching your holdings in Franklin India Bluechip and Franklin India Prima to Franklin India Prima Plus, which is a large-cap fund with a modest exposure to mid-cap stocks.

Both Bluechip and Prima have turned in a rather indifferent performance over the past two-three years, faced with a burgeoning asset base and a rigid investment mandate. In any case, it is better to avoid owning too many funds from the same fund house.

You can also consider gradually redeeming your investments in Reliance Equity and UTI Mastershare. These changes should help you consolidate your portfolio.

Over the long-term, growth option has outperformed that of dividend and you can consider switching to the former. But choosing the dividend option does protect your portfolio from sharp market downslides and may be a more prudent investment practice.

Funds normally declare dividends when they sense that the market or theme is over-heated or likely to run out of steam soon. By going for the dividend option, you can re-balance your asset allocation by sweeping dividends into safer options such as fixed deposits. Opting for the dividend option is especially a good idea when considering exposure to aggressive theme funds.

SHANTHI VENKATARAMAN

(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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