The Hindu Business Line : Fund Talk

Though earnings and growth concerns in the near term may make for moderate returns over the next few years, investments made now stand a good chance of generating a 20 per cent annualised return over a five year-plus time-frame.

I want your advice and guidance about my portfolio. I am 33 years old and intend to start SIPs totalling Rs 10,000 per month. What funds do I need to invest in? I am a long-term investor and intend to continue with the SIPs for a period of 15 years with a review every year. I currently hold HDFC Long Term Advantage, Reliance Vision, DSPBR TIGER Fund, Fidelity Equity and HDFC Prudence. I enclose details of my holdings. Please tell me which funds I must retain, and the ones to divest or add to.

Ameet Dutta

From the fact that your overall portfolio has suffered a 24 per cent erosion in value, much lower than what the market has suffered this year, we assume that that your investments in the above funds have been phased out over a period of three years or more.

None of your equity fund choices are actually bad. However, the meltdown of the past year has had a significant impact on equity fund returns. Therefore, with a full market cycle behind us, we feel that it would be best to retain/increase exposure to the equity funds which have weathered the entire cycle (both up and down) better than their peers.

We also hold the view that given the earnings concerns surrounding many sectors, large-cap oriented funds with a diversified portfolio may be better placed to benefit from any market recovery than funds that ride on mid-cap stocks or on select themes. Based on these criteria, we would suggest the following changes to your portfolio: First, we would suggest switching from HDFC Long Term Advantage Fund into HDFC Top 200 Fund, based the latter’s superior return track record over the past five and three years. You may also switch from Reliance Vision Fund into Reliance Growth Fund for much the same reason, a better track record.

We would also recommend a switch from DSPBR TIGER Fund, a theme fund, into DSPBR Top 100 Fund, a diversified equity fund which invests in the top 100 stocks by market capitalisation. The latter may give you less volatile returns and the ability to benefit from any recovery in the stock markets led by frontline stocks. You can retain the two other funds that you own — Fidelity Equity and HDFC Prudence.

Your overall portfolio composition may also need a rejig as it has high exposures to three of the funds and low exposure to the others. Your current portfolio is mainly concentrated in Fidelity Equity (36 per cent), DSPML TIGER (23 per cent), HDFC Prudence (21 per cent), with relatively low exposures of 5-7 per cent to the other three. We would favour a more balanced spread of investments between the funds in your portfolio.

We recommend reducing exposure to Fidelity Equity and adding exposure to DSP Top 100 and HDFC Top 200 for a more even spread. Retain your exposure to HDFC Prudence as its balanced profile may lend some stability to your portfolio. This is indeed an excellent time to make fresh investments in equity funds, given the relatively low market and valuation levels.

Though earnings and growth concerns in the near term may make for only moderate returns over the next couple of years, investments made now stand a good chance of generating a 20 per cent annualised return over a five year-plus time frame. You can start SIPs in the funds recommended above; HSBC Equity, DSP BR Equity and Sundaram Select Focus are the other funds that you can consider starting SIPs in.

Finally, you’ve made a mention only of equity investments in your portfolio. We do hope you have other debt investments apart from these. Even though you are in your thirties, at least 30-40 per cent of your overall investments/savings need to be in debt/fixed income options such as liquid funds, the PPF and fixed deposits.

Adhering to a fixed asset allocation plan between equity and debt may save you sleepless nights when the stock market goes through a bearish or volatile phase, as it may reduce the impact of market swings on your overall wealth.

AARATI KRISHNAN

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