Fund Talk

I am 30 years-old and have tried to build an aggressive portfolio for the long-term (20 years). Though you recommend 5 to 6 funds for investment through SIP mode, I have invested in 10 funds through monthly SIPs under growth option. I wish to know if I am over-diversifying or duplicating some funds. Funds invested are DSP Top 100, HDFC Prudence, BSL Frontline Equity, HDFC Top 200, Reliance Opportunities, HDFC Equity, DSP Small & Midcap, IDFC Premier Equity, BSL Dividend Yield Plus, HDFC Midcap opportunities and value averaging through Benchmark CNX 500. I have no debt fund exposure as yet, to rebalance assets, and would seek your advice on this.

Vijay

You hold a good set of funds which are ideal for long-term investments. But yes, the portfolio can be made more compact to prevent overlap of funds with similar strategies. Before we do that, we would like to clarify on when/why a compact portfolio is needed.

The number of funds you hold would depend on two key factors: one, the amount of investments you make and two, your ability to track fund performance. If you have limited savings of say Rs 2,000 or Rs 4,000 per month, you would not be required to hold even 5 funds. Two to three funds should do the job of providing you a diversified portfolio. On the other hand, if you have a very high investible surplus, it is prudent to spread it over more funds to avoid holding all your eggs in one basket. Spreading investments over 8 or 10 funds is not entirely wrong then. But if you do hold more schemes, it is imperative that you know the investment universe of your funds to avoid duplication. Also, you should spare some time and put in a little more effort to understand your fund performance and track them regularly.

Consolidation time

Moving to your holdings, we do not know the amount of SIPs you run on these funds and hence assume that there is scope for consolidating investments. DSPBR Top 100, HDFC Top 200 and Birla Sun Life Frontline Equity are all large-cap funds. Given your high-risk appetite and longer time frame for investment, you can limit exposure to large-cap funds.

Continue to hold DSPBR 100 and switch to HDFC Equity from HDFC Top 200. HDFC Equity is a diversified fund and provides exposure to midcaps as well. This will ensure higher returns in the long term. HDFC Top 200 is a top-notch fund. Our recommendation to exit this fund is merely for the purpose of consolidation. Similarly shift from Birla Sun Life Frontline Equity to Birla Sun Life Dividend Yield Plus. The latter may provide sufficient exposure to dividend yield stocks, which may be less volatile too, over the long term. However, ensure that you watch this fund's performance and switch if it underperforms the diversified fund category average over a three-year time frame. Continue investments in Reliance Equity Opportunities. However restrict exposure to this fund to 10 per cent of your investments and actively track its performance. This fund can be quite volatile but since you are looking at an aggressive portfolio, you may continue investing in it.

You can hold two instead of three mid-cap funds. You may exit HDFC Midcap Opportunities, merely because you already have enough exposure in others funds from the same stable. You may, instead, increase SIPs in the other two. Consider holding 25-30 per cent of your SIPs in mid-cap funds. HDFC Prudence would provide some debt exposure and given that it has kept pace with the equity category performance over the long term, it will fit your aggressive portfolio as well. Value averaging in CNX 500 involves higher risks than SIPs. This is because you may at times be buying more and more units of the fund during protracted market declines and end up having too much exposure to a single fund. Hence ensure that this index fund does not exceed 10 per cent of your total investments. Book profits occasionally to maintain this proportion.

Need to diversify

Even if you are an aggressive investor, diversifying into other asset classes is the ideal way to optimise your investment strategy. In the volatile equity market of the last three years, debt would not only have provided a hedge against equity declines but actually propped up overall portfolio returns. Classic example being equity-oriented funds with some debt exposure such as HDFC Prudence, which have actually managed to beat some of the top equity funds over a three-year time frame.

If you are a salaried employee, you are likely to have an Employees' Provident Fund account. This, together with traditional options such as PPF, bank deposits or corporate deposits/bonds of companies with good credit rating will be good options. Ensure that you time your investment in these options in such a way that your tax-adjusted returns are not less than 8 per cent.

PPF will provide you this over the 15-year holding period. Bank/corporate deposits too offer favourable returns at this juncture. In mutual funds, you can go for debt-oriented options HDFC Multiple Yield 2005 or Canara Robeco MIP and also fixed maturity plans. Between equity and debt, you can aim for a 70:30 or 75:25 balance.

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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