The Hindu Business Line : How to tweak your fund portfolio

“What do I do with my mutual fund portfolio?” appears to be the foremost question in every investor’s mind now. For those of you who courageously remained invested from the Sensex level of 21,000 to 13,000 now, the market cannot fail to reward you over the long term, or so suggests history.

While the current market conditions provide little hope to quickly retrieve what you have lost, the protracted volatility/sideways movement provides a good opportunity for new and existing fund investors to not only accumulate some good funds but also ruthlessly weed out the portfolio draggers.

Here are a few strategies that may help mitigate further losses on the portfolio and also hold a basket of funds that may gain optimally on a market revival.

Time to weed

While you may have been reluctant to disturb your portfolio in a bull market, the time to clean up could well be now. New funds with limited track record or below average funds that have not only been dragging your portfolio during rallies but have also failed to contain downside in relation to peers may have to be shown the exit route.

By holding on to such portfolio draggers, you are denying the better funds in your basket an opportunity to prop your returns especially during a market revival. Consider switching to funds with a good track record. If you do not have large-cap funds in your portfolio, consider buying them. Refer Pg 10 of this issue for three large-cap funds to invest in.

Averaging works best now

For an investor who does not actively track the markets, systematic investment plan (SIP) would be among the most efficient tools to invest in a volatile market such as the present one. For instance, an SIP in Kotak-30 from January of this year till date would have declined by 17 per cent, as against 35 per cent had a lump-sum investment been made in January.

An SIP works better now since you would be purchasing every additional set of units at lower costs in a declining market. While SIP does not certainly help maximise returns, it remains the best disciplined investing option for a lay man.

However, if you are an astute investor who follows the market closely, then consider investing small lump-sums at every decline. The level of decline is a call that you may have to take. For instance an every 4-5 per cent decline in the Sensex could be a good entry point depending on your comfort level.

Remember while it is difficult to time the markets at all points, timing no doubt provides superior returns; the current market environment also appears conducive to adopt this strategy given the sharp market gyrations. You do not have to choose a fresh fund for averaging. You can accumulate a fund with a good performance record that already exists in your portfolio.

Take advantage of interest rates

If your portfolio has very little of debt component or you wish to invest now for a financial goal of, say, less than two years, there could be some good options at this point in time. The current expectation that interest rates will peak out and soften provides a good case for investing in debt instruments such as Fixed Maturity Plans and fixed deposits with a tenure of even over a year. This may help you to lock into attractive pre-tax rates between 10-11 per cent — a return that may not last long in the debt category.

As a regular strategy, book profits in funds after setting target returns. Sweep the funds into better equity opportunities or, if you are nearing your financial goal, move to safer debt avenues. This will help prevent erosion of the returns you earned.

VIDYA BALA

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