The Hindu Business Line : Fund Talk

I am a retired professional, aged 58 yrs. I have invested in nearly 27 mutual fund schemes (details of which are enclosed). I have been booking profits one year from the date of investment, and when the NAV appreciated. So far, I have redeemed/booked profits of nearly Rs 2,50,000, and have reinvested them in NFOs and FDs. I have been investing in mutual funds since 2005. My investment horizon is 3-5 years, and I prefer direct investment rather than SIP. Kindly go through my portfolio and suggest which funds need pruning or closure, and in which funds I should increase my investments. My other sources of income are from PPF Fixed Deposits, RBI bonds, and Post Office Term Deposits.

S. Srinath

Bangalore

As a retired investor, you have done well to spread your money across debt and equities, with a 65:35 ratio in favour of debt. However, the number of mutual funds you hold appears very high. This would require lot of time and active tracking to manage them, given that you follow a strategy of occasionally booking profits. We suggest the following primary changes to your portfolio:

Reduce the number of equity funds that you hold to more manageable levels

Continue your strategy of actively booking profits. However resist the temptation of investing them back in new fund offers

Actively consider other mutual fund debt options such as fixed maturity plans as these may be superior options in terms of tax efficiency.

The reasons for the above suggestions are explained below.

You appear to have purchased a number of funds over the past two years. You now have too many funds with similar themes or objectives. In other words, there is duplication of investments. We would like you to prune the number of funds from 27 to 14 and suggest that you gradually take it to 10, based on fund performance. Retain Birla Sunlife Equity, Reliance Growth, HDFC Prudence and Magnum Contra.

Add Sundaram BNP Paribas Select Focus and DSP ML Balanced to this. These six funds can make up your core portfolio. We suggest you exit Franklin India Bluechip, ICICI Pru Power and HDFC Multicap as these funds have relatively under performed the above six. Money received on exit can be utilised to accumulate the six funds we have mentioned.

Portfolio: You have too many infrastructure theme funds. Retain Sundaram Capex Opportunities and Tata Infrastructure and exit the rest. Apart from infrastructure, the former would provide an opportunity to ride the ‘capex beneficiaries’ theme as well. Ensure that you actively book profits in these theme funds. JM Contra and Franklin India High Growth Companies are new funds that hold potential. Closely observe their performance for the next few quarters.

Do take note if the fund consistently under performs its benchmark or languishes in the last quartile of performance chart of diversified funds. Retain exposure in Birla Midcap and Reliance Vision. We presume the ‘Standard Chartered Equity’ you have mentioned is Standard Chartered Premier Equity. If so retain the same and exit if otherwise. You may have to hold Reliance Tax Saver until September 2008 as it has a three-year lock-in.

Time your exits in such as way that you do reduce the incidence of capital gains tax.

Book profits: In a bull market such as the present one, it is prudent to book profits and ensure that your equity exposure does not expand too much over what was originally allocated. You have mentioned that you allocate the profits booked/funds redeemed to new funds and deposits. While investing in deposits is a welcome strategy, we suggest you avoid entering new funds in search of quick gains.

Book profits, but avoid redeeming diversified funds that are performing well unless you are in need of cash. There too, first redeem the ones that are dragging your portfolio performance. Continuous redemption and entry would only amplify your portfolio costs.

Debt: You have built a sound debt portfolio that would take care of you’re regular income needs. You can also actively consider investing in fixed maturity plans of mutual funds. These are superior debt options as the dividends earned are tax-free. Profits booked in mutual funds can be diverted to FMPs and deposits.

You could also consider investing further in post-office schemes if the forthcoming Budget provides for any tax relief on these instruments.

VIDYA BALA

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