Mutual Funds

Match funds to your risk appetite

K. Venkatasubramanian | Updated on June 30, 2012


Have a core portfolio of 3-4 established funds that deliver steady returns.

Please suggest four mid-cap funds. — Sanjeev Udeshi

We do not know how many funds you currently hold. But having four mid-cap funds in a portfolio would entail high risk. Also mid-cap funds must form only a part of your portfolio and not be entirely flooded with them.

But if you can stomach high volatility and are insistent on mid-cap funds towards building a corpus over seven to 10 years through the SIP route, there are schemes where you can park your money. You may invest in IDFC Premier Equity, ICICI Pru Discovery, HDFC Midcap Opportunities and Canara Robeco Emerging Equities.

*** How many funds should one hold in a portfolio for a total SIP amount of say Rs 50,000 to Rs 1 lakh a month? How should one distribute SIPs between large-cap, mid-cap/small-cap, multi-cap and balanced funds? What is the recommended distribution for a holding period of 15 years? — Rasesh Choksi

Unless you have a large surplus that you can put away for the long term, the amount you mention is too high to be invested in monthly SIPs. Adequate provisions must be made for investments in other asset classes such as debt, gold and real estate.

In general, if the amounts are of the order that you have mentioned, you may hold it in six to eight funds. Beyond this level, it would become difficult for you to track the schemes regularly and the portfolio could become unwieldy.

Coming to the second part of your question on holding funds across market capitalisation, a lot would depend on your risk appetite. The good part is that your investment horizon is 15 years. It is generally advisable to have a core portfolio of three to four funds with a long and established track record that can deliver steady returns and three to four satellite funds of higher risk profile that can prop returns. The satellite portion needs to be monitored closely and frequently and if necessary be churned, while the core portion can be largely untouched, barring exceptional circumstances.

If you are an aggressive investor, you may invest in three large-cap, three mid-cap and two multi-cap funds. But if you cannot stomach risks, you may invest in four large-cap funds, one balanced scheme and add a couple of mid-cap and one multi-cap options.

These are not watertight rules, but are just indicative suggestions and may vary based on individual needs.

*** I invested once in the following funds: Tata Indo Global Infrastructure and Reliance Natural Resource (both investments made in February-March 2008), Reliance Diversified Fund (December 2007) and Franklin India Flexi-cap(April 2006). All of them have lost value as on date. Should I continue with them or withdraw the sum and deploy it in other schemes? — Manjula

Among the four funds in your portfolio, three are sector/theme funds. Infrastructure, power and natural resources as themes have underperformed over the past three to four years. We assume that by Reliance Diversified you meant Reliance Diversified Power Sector.

You might have wrongly calculated returns for Franklin Flexi-cap Fund, as the scheme has delivered compounded annual returns of 11.3 per cent over the past six years. You may retain this fund or switch to Franklin India Bluechip.

You may exit the sector funds and invest the proceeds in large-cap funds such as ICICI Pru Focused Bluechip Equity, DSPBR Top100 and HDFC Top 200. If you have a higher risk appetite, you may invest in IDFC Premier Equity and HDFC Mid-cap Opportunities or choose multi-cap funds such as Quantum Long Term Equity and Canara Robeco Equity Diversified.

Published on June 30, 2012

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