Fund Talk

I am a retired professor, aged 64 and a regular investor in mutual funds from 2005. To start with, I invested through lump-sum mode in NFOs as well as existing funds. However, I totally shifted my lump-sum investment to SIP mode. For over ten months now, I have been investing in 20 schemes. My current investments are: Birla Dividend Yield Plus, DSP Small & Midcap, HDFC Equity, HDFC Growth, HDFC Top 200, ICICI Pru Discovery, ICIC Pru Dynamic Plan, IDFC Premier Equity, Reliance Equity Opportunities, Reliance Growth, Reliance Regular Savings Equity, SBI Emerging Businesses, Sundaram S.M.I.L.E, Sundaram Select Midcap and UTI Dividend Yield.

Thematic Funds: Reliance Banking, Reliance Pharma and Franklin Pharma.

Balanced Funds: HDFC Prudence and Reliance Regular Savings Balanced MIPs: HDFC MIP Long Term, and Reliance MIP. Please suggest changes to the aforesaid list so as to fetch maximum returns over five years.

M.V. Krishnam Raju

Bhimavaram

Your problem is clearly one of plenty, given the almost two dozen funds that you hold. While you have diligently switched to systematic investment plan to avoid the risk of timing the market, you have spread yourself too thin by investing in too many funds.

The limitations of this are two-fold: one, it may not be easy to for you to keep track of the performance of so many funds, especially theme funds, which require active review. Two, it is possible that your overall portfolio returns may be pulled down by some of the mediocre funds when you hold too many of them.

You will have to reduce the number of funds you hold, to optimise returns.

Trim your portfolio

To enable this, we can suggest some exits and add a few better funds to your portfolio. We take into account your age and your retired status to assume a moderate risk profile. You may continue to invest in Birla Sun Life Dividend Yield Plus, HDFC Equity, HDFC Top 200 and UTI Dividend Yield.

To this you can add Quantum Long Term Equity. Instead of holding multiple midcap funds, it would suffice that you hold just one or two. IDFC Premier Equity and Sundaram Midcap, in that order, would be our preferences. While the other funds that you hold too have decent track record, our suggestion is based on the risk-return profile of these funds.

It is also worth noting that midcap funds as a category have not been able to deliver adequate returns that compensate for the risks that investors are subject to in these funds. Over a three-year period, for instance, only a handful of mid-cap funds delivered double-digit returns. Over a five-year period, only IDFC Premier Equity Plan A returned over 20 per cent. We suggest you use an active strategy of setting target returns, booking profits, and using a systematic withdrawal plan in mid-cap funds.

Reliance Equity Opportunities is a very dynamic fund and if you are willing to hold on to a rough ride, you may hold the fund but reduce your SIPs in it. For the sake of trimming your portfolio, consider stopping SIPs in the rest. Gradually exit from the other funds, ensuring that you do not suffer exit load by redeeming earlier than the minimum holding period.

Continue with SIPs

Continue SIPs in HDFC Prudence and Reliance Regular Savings Balanced. Any money from selling equity funds can be deployed in to Canara Robeco MIP as HDFC MIP Long Term.

We do not recommend long-term SIPs in theme funds. Themes have their own cycles and may underperform for prolonged periods. Unless you can track these sectors actively and hold conviction, we suggest you stop SIPs in pharma, book profits and hold the capital. You may choose to continue SIPs in Reliance Banking for a year or two and consider booking profits.

Any surplus in hand from sale of units now can be ploughed into attractive fixed deposit/bond options available in the market now. You have mentioned that you wish to maximise returns in five years. Given present market conditions, a 12-15 per cent return compounded annually over five years, may be a reasonable expectation. However, our suggestion would be for you to move to safer avenues of debt after three years, if you have far exceeded your return targets.