The Hindu Business Line : Fund Talk

Your fund choice also indicates that your decision is largely based on the last one year’s performance. This essentially means that you have a very high-risk portfolio.

I am a 54-year old running a retail business. My other sources of income are fixed deposits, bonds, land and buildings, and shares. The retail business is in trouble from multi-national and nationals. I want to invest a total of Rs 10 lakh for five years. I started by investing about Rs 3,40,000 in six mutual funds, three months ago under dividend options. The funds are: Reliance Diversified Power, JM Basic, Standard Chartered Premier Equity, Canara Robeco Infrastructure, Sundaram BNP Paribas Capex Opportunities and UTI Infrastructure. Please suggest where I should invest the balance amount without incurring entry load as per the recent SEBI mandate.

C. Gopinath

Kerala

It appears that you have very recently started investments in mutual funds. If so, you have started off by investing mostly in theme funds and have very little exposure to diversified funds. Your fund choice also indicates that your decision is largely based on the last one year’s performance.

This essentially means that you have a very high-risk portfolio (concentrated in a single theme), almost devoid of any diversified fund with a long-term track record that could hold potential to provide some cushion from downside risks.

Two, you have made a mention of risks in your retail business. If you are looking at widening your regular income stream then mutual funds may not be the best choice as there are no assured dividends offered by funds. Added to this, like stocks, mutual funds as an equity class are subject to declines.

Given the five-year time horizon you have stated, we presume you are looking at mutual funds as a wealth building option and the other streams of investments you have mentioned provide adequate income.

Portfolio: With this assumption, we suggest some changes to your portfolio that would help build a core and satellite model — core funds being diversified schemes that have weathered various market phases and satellite funds that would allow you to experiment with new ideas or themes that could perk up your overall portfolio returns. We suggest you hold HDFC Equity, Sundaram BNP Paribas Select Focus, Magnum Contra, DSP ML Opportunities, HDFC Prudence and Reliance Vision as your core investments. This would provide you with a mix of large, mid and flexi-cap funds all with at least a good five-year track record.

Among the funds that you hold, Standard Chartered Premier Equity, Sundaram BNP Paribas Capex Opportunities and UTI Infrastructure can be retained as your satellite funds.

While the other funds you hold are also performing well, holding them would only not only result in duplication of idea/theme but enhance portfolio risk as all funds can suffer if the theme/sector is on a down trend. Sundaram Capex and UTI Infrastructure would enable you to sail the theme. You can consider adding Birla Midcap to the satellite portfolio.

This adds up to 10 funds, six of which would be core. We suggest you invest 70-80 per cent in the core and not more than 30 per cent in the satellite funds. This would require you to gradually reduce holdings in your present funds and move to the new ones suggested.

Also actively book profits to maintain this proportion. Dividend option also allows you to take back a part of the profits you have earned.

Considering your age, we also suggest that you deploy the profits booked in mutual funds to debt options. This way you would be able to augment your stream of regular income if you choose to retire.

Entry Load: You can avoid the entry load by directly submitting the application (by post or in person) to the fund house or a collection centre of the fund house or the investor service centre (such as Karvy or CAMS) chosen by the fund.

Applying through the Web site of the fund house, if such an option is provided, is also acceptable. You will, however, incur entry load if you apply through a broker (online or offline) or distributor or agent.

VIDYA BALA

(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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