The Hindu Business Line : Fund Talk

I am 44 years old and would like to invest for growth. Please look through my current portfolio, which also has systematic transfers from liquid to equity funds. Many of them are over two years old, except Reliance Diversified Power. I do not need the funds for the next five years. Is my current portfolio well structured?

I also invest on a monthly basis Rs 6,000 in HDFC Equity and Rs 4,000 in Reliance Vision. Can I continue with this? Would you suggest a Gold ETF at this stage and if so which one? What are funds would you suggest for any surplus that I might have?

K. Ananthapadmanabhan

You have done well to adopt a systematic transfer plan to move into equity. This enables you to not only average the cost of your equity portfolio but also earn better returns by placing the balance in a liquid fund instead of a bank savings account. You can continue parking any significant surplus in such funds and make systematic transfers to equity.

While you have managed to build a compact portfolio, the proportion of holding in diversified funds appears insufficient. Of the funds that you hold, HDFC Equity, Reliance Vision and HSBC Equity qualify as core funds as their diversified investing style and long track record would provide more consistent returns at risks lower than sector funds.

Such funds are essential for every portfolio irrespective of an investor’s risk profile as they help neutralise shocks arising from riskier exposures to sector funds. Remember that your core funds need not always be the top performers. It would suffice it these funds have weathered various market phases well and have beaten their benchmarks and provided consistent returns that compensate for the risks undertaken.

At present, 43 per cent of your capital is in the above three core funds. We suggest you have at least 55-60 per cent of your capital invested in core funds. You may consider adding one more fund – DSPML Top 100 Equity to this list and invest through an SIP. Further, your exposure to Reliance Vision appears rather high. This fund is known to carry marginally higher risks than some of its peers. We suggest you significantly reduce your monthly SIP in Reliance Vision and start an SIP in DSPML Top 100 as well as HSBC Equity.

You may continue with Magnum Global, but do not accumulate it for now. The fund has severely under-performed the market in recent times. Funds such as Birla Midcap or HSBC Midcap may be better options if you are looking for exposure in mid-caps.

Your portfolio has high allocation to theme funds. Investments in such funds can be restricted to 10-15 per cent of the total. You hold 30 per cent at present in a single theme.

DSPML T.I.G.E.R has higher diversification as it has a broader theme while Reliance Diversified Power invests primarily in power generation, distribution, transmission and power financing companies. The latter being high-risk in nature, has declined sharply during recent market volatility.

As you have very recently entered this fund, you have incurred losses till date. While we suggest you stay with the fund, fix a target return and book profits regularly to restrict exposure to theme funds.

Gold may be a good asset class for diversification purposes. While this may not the best time to buy gold funds, you can consider exposure to DSP ML World Gold Fund, an open-ended equity fund. This fund invests in Merrill Lynch’s international fund which invests in stocks of gold mining and producing companies. World Gold Fund has also outperformed other local exchange traded gold funds.

If you have a surplus, consider an SIP in HDFC Prudence for partial to debt. One-year fixed maturity plans may also be a good option for exposure to debt.

VIDYA BALA

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