Fund talk

In August 2010 my husband consolidated our portfolio and purchased the following funds: Rs 5 lakh in DSP Black Rock Focus 25, Rs 5.40 lakh in IDFC Small & Midcap Equity, Rs 5 lakh in HDFC Top 200 Fund, Rs 5.85 lakh in Franklin India Prima, Rs 50,000 in HDFC Balanced and Rs 5 lakh in DSP Black Rock Equity.

Apart from the above, we had invested Rs 25,000 in Reliance Infrastructure Fund Retail growth plan in July 2009.

Also, from Aug 2010, we started SIPs in the following funds: Rs 2000 in Reliance growth, RS 5000 in UTI Dividend Yield, Rs 2000 in HDFC Midcap Opportunities, Rs 3000 in HDFC Equity, Rs 2000 in HDFC Top 200, Rs 3000 in Kotak Opportunities and Rs 5000 in IDFC Small & Midcap Equity.

My age is 35 and my husband is 42. We are working and our kids are 14 and 12 years old. Please tell us whether our portfolio needs a change now. We are medium-risk investors.

S. Narthaki

While making lump-sum investments, timing becomes an important factor. A disciplined approach and following a periodic investment routine, say through the SIP mode, is important to ride out volatility and accumulate a long-term corpus. So, if you had consolidated and made fresh investments in August 2010, when markets were not far from the highs, the value of your funds may be down by a little over 5 per cent. Although this is better than the broader market fall, it could have been better but for the divergent performance of the funds in your portfolio.

In case markets fall heavily in the current clouded macro-environment, a large chunk of your investment would be exposed to market vagaries.

Another aspect that is noticeable in your portfolio is that there are as many as 11 funds that you own. And this despite having “consolidated” your holdings.

You may ideally hold 5-6 funds in the portfolio for you to be able to track them easily and make changes when necessary. With more funds, there is also the danger of duplication in investing styles.

Finally, all investments must ideally be linked to a goal and there must be a clear investment horizon to achieve it. These will be the key deciding factors in choosing the right funds. If nothing else, there must at least be a target corpus in mind.

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Lump sum investments

Moving to your portfolio, we assume that you are already invested in debt avenues and other asset classes. You have invested fairly large lump-sums in individual funds. The value at risk is therefore high.

You have a high exposure to DSPBR Focus 25, which has a limited track record. We suggest you either prune exposure to a fourth of current capital or exit it. Allocate the proceeds from sale of DSP BR 25 in to HDFC Balanced.

Also exit Franklin India Prima as its performance over a longer time-frame has been below par. For the sake of avoiding duplication exit DSPBR Equity and switch to DSPBR Top 100 (through SIP) for a large-cap focus.

Although IDFC Small and Midcap has been performing exceedingly well over the past three years, we suggest you invest in it only through SIP in future as you have a medium-risk appetite. Continue to hold HDFC Top 200. Exit Reliance Infrastructure fund as it has fallen heavily compared to the broader markets. Most funds focussed on the infrastructure theme have taken a sharp knock and the near-term prospect of a turnaround in this sector appears doubtful.

As far as your SIP investments are concerned, exit Reliance Growth and Kotak opportunities as their performance over the last 2-3 years has not been satisfactory.

Blend of large- and mid-cap stocks

As you already have significant exposure to HDFC Top 200 through lump-sum divert this amount towards upping SIPs in UTI Dividend Yield. You have exposure to midcap funds through lump sum and SIPs in IDFC Small & Midcap Equity as also SIP in HDFC Midcap Opportunities.

Our suggestion is that you suitably prune this exposure to keep midcap funds to 25 per cent of your equity exposure. For this purpose, you can consider stopping SIPs in HDFC Midcap opportunities.

The fund, no doubt, has an impressive track record. Our recommendation is more to do with your moderate risk profile and also the fact that you own too many funds from the HDFC stable. Continue HDFC Equity SIPs for a multi-cap approach to investing.

In all you would now have SIPs running in DSPBR Top 100, HDFC Equity, UTI Dividend Yield and IDFC Small & Midcap Equity. Additional proceeds from sale of funds can be diverted towards a new SIP in Benchmark's CNX 500 index fund. This would provide you with a diversified portfolio of 500 stocks.

In future, whether you go for consolidation of portfolio or fresh investments, use SIP rather than lump-sum approach, to avoid risk of ill-timing the market.

Queries may be e-mailed to >mf@thehindu.co.in

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