The Hindu Business Line : Fund Talk

I have been investing in the mutual funds through SIP since November 2006. The following funds make up my investment portfolio, with their weightages given alongside: Franklin India Bluechip (20 per cent), HDFC Top 200 (15 per cent), DSPML Equity (10 per cent), Reliance Growth (16 per cent), Sundaram BNP Paribas Select Midcap (16 per cent), Franklin India Opportunities (13 per cent), Franklin India Prima (9 per cent) and HDFC Core and Satellite (1 per cent). I am 32 years old. I am investing for a long term (10+years) and will be fairly risk tolerant for next five years. I have pruned my investments to a core portfolio comprising the first five in the list above for which I have a SIP running till February 2008.

Is my core portfolio of funds comprising Franklin India Bluechip, HDFC Top 200, DSPML Equity Reliance Growth and Sundaram Paribas Select Midcap the right choice? (Once I get the funds in core portfolio right, I want to allocate 60 per cent to large-cap funds and 40 per cent to mid-cap and flexi-cap funds).

Do I need to have more than two large-cap funds in a core portfolio of five funds? Do I have to take another look at my choice of the large cap funds in my portfolio vis-À-vis (Franklin Bluechip and HDFC Top200). If I were to, what are the other choices and should I discontinue investments in the current ones? When should I sell my non-core funds and should I invest the proceeds in the core funds?

Sriram Vanamamalai

You can retain the funds in your core portfolio, with the exception of Franklin Bluechip, which could be replaced with Franklin India Prima Plus. The former’s performance in the last couple of years has not been as impressive as some of its peers. A 60-40 allocation to large-cap and mid-cap funds appears appropriate. You do not really need more than two large-cap funds in your core portfolio. You might well be able to get the large-cap allocation you want even if you invest in just one purely large-cap fund and a couple of diversified funds — even if they do not have a specifically large-cap mandate. More aggressive funds and those that have a smaller corpus to manage do have a tendency to take a higher allocation to mid-caps. But generally, most diversified funds invest 60-70 per cent of their assets in large-cap stocks and the balance in mid-cap stocks. For instance, your current core portfolio has a fairly high large-cap allocation.

While Franklin India Bluechip and HDFC Top 200 are strictly large-cap funds, DSP ML Equity fund is more like the average diversified equity fund, investing in large-cap stocks while at the same time offering some mid-cap flavour to investors with a moderate risk profile.

There are times when mid-caps are in fancy and diversified funds sharply increase their allocation to these stocks. During such times, you might consider adding more pure large-cap funds to contain rein in risk.

You should retain funds in your core portfolio for a three-five year period. Make changes only if there is a sharp slide in performance. Your non-core portfolio is churned more actively. Typically, sector funds, funds with a more aggressive mandate, contra, value, real-estate or commodity focused funds will fall under the non-core portfolio for the average investor. Regarding when you should sell your non-core funds, booking profits on such funds periodically or on achieving a target return is a good idea. For instance, value funds may outperform only for a short period of say 1-2 years. Opting for dividend option in such funds is another way of cashing in on returns. The proceeds can be re-invested in the core portfolio or even swept away to other safer investment options.

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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