The Hindu Business Line : ‘My portfolio has too many funds with low returns’

I am 32, recently married and would like to retire after eight years. I would like to grow my portfolio to Rs 1 crore. I own property, debt and some equity investments. Though my property and debt investments will meet a good portion of this goal, I am confused about my equity fund portfolio. I tend to keep shifting my money to the best performing funds. This has resulted in too many fund holdings with low returns. I own DSPML Equity, HDFC Long Term Advantage, Tax Saver and Top 200, Kotak Opportunities, Reliance Growth, Magnum Contra and JM Core 11. I am down by Rs 1 lakh on this portfolio. Please tell me what I should do.

Harish Tergaonkar

With the BSE Sensex down by 20 per cent, the erosion in the value of your equity fund portfolio is not surprising. In fact, considering your overall investment of Rs 23.75 lakh in equity funds, the actual damage to your portfolio may be much more than the Rs 1 lakh you have mentioned, if you reckon it from its peak value in early January. Such corrections can be used to overhaul your portfolio.

Since you have an investment horizon of eight years, there is considerable time for your equity funds to recoup lost ground and deliver reasonable returns. Assuming your equity funds deliver a moderate annualised return of 12 per cent over the next eight years, your portfolio value will stand at Rs 58.8 lakh by 2016. Your property and debt investments may more than make up the rest, towards your goal of a Rs1-crore portfolio. As your goals appear to be well within reach, you can take two approaches to restructuring your fund portfolio now. You can reduce the risk that you carry by switching from pure equity funds to balanced or hybrid funds. This will reduce the vulnerability of your portfolio to any sharp falls in the stock market, while still keeping an investment return of 12 per cent within reach. Alternatively, if you do have the risk appetite for equity investments, you can retain an “all-equity” portfolio. If you opt to reduce the risk on your portfolio, we suggest you replace two of the pure equity funds you own with balanced funds — HDFC Prudence and DSPML Balanced Fund are two good options. If you would like to retain a pure equity portfolio, we would still suggest you add funds such as Birla Sun Life Frontline Equity Fund and HSBC Equity Fund.

We suggest you exit HDFC Long Term Advantage Fund and HDFC Taxsaver, once your lock-in period on these funds is completed. Both funds have suffered a sharp slippage in performance over the past year. Funds such as DSPML Equity, HDFC Top 200, Reliance Growth and Magnum Contra, though not top performers over the past year, can be retained for their good long-term record. Kotak Opportunities lacks a long track record, but is an aggressive fund that has outperformed in the past one year; it can be retained for now. Finally, on your tendency to churn your portfolio, that isn’t bad in moderate doses. But the parameters that you use to select funds and the frequency at which you churn your holdings are key to churning right! We would suggest that you review your fund portfolio at quarterly intervals. Look for replacements to your existing funds only if you find a fund sharply (by 5 or more percent) lagging the benchmark as well as peer group over an extended period. Pay attention to 1,3 and 5-year performance rather than shorter time-frames. Remember, the top performers for a month or a quarter may have got there merely because the fund was lucky enough to latch on to a fancied sector or theme. The funds in your core portfolio need to deliver a 12-15 per cent return consistently; look for funds that can do this.

AARATI KRISHNAN

(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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