I started investing in mutual funds from November 2005. I want to build a portfolio, which is well-suited for my mid- and long-term requirements. For the next two years, I do not foresee any need to redeem my fund investments.
I am planning to replace Kotak Contra with Kotak 30. I want to move from Birla Long Term Advantage Fund to Birla Frontline Equity Fund, but there is some exit load. Should I do this? I also want to move from IDFC Enterprise Equity to IDFC Premier Equity, as I think that the latter has performed better. Is it the right decision?
I plan to invest 50 per cent of my future salary increments through a systematic investment plan (SIP) from now onwards. Please advise me regarding my future investment strategy. Do I need to invest in some balance funds for proper asset allocation? Kindly look into my investment and suggest further changes.
Profile of Investor:
Salary: Rs 17,000 per month
Life Insurance: Rs 2 lakh
Mediclaim: Rs 75,000
Accidental Insurance: Rs 2 lakh
Fixed Deposit: Rs 30,000
Total Investment in shares: Rs 100,000
Mutual Fund Investment: Rs 90,000
Monthly SIP: Rs 3,000
Dependants: Wife and daughter
Goal:
Medium term:
1. Daughter’s school admission
2. Parents’ health/medical treatment
3. Meeting expenses on family functions
Long Term:
Daughter’s higher education and marriage
We are impressed with your investments and selection of term insurance for risk cover. But your portfolio has limitations. Overcoming these will sharpen your portfolio to suit your medium- and long-term objectives.
Too Many Funds
There are too many funds in your portfolio. The investment amount of
Rs 1.10 lakh is spread across 15 funds, which are invested across another 250 stocks. Around 91 per cent of these stocks have a mere allocation of below one per cent of the total investment. This leads to over-diversification in your portfolio. Also holding too many funds result in unnecessary paperwork.
| Suggested Portfolio | |
| Fund | %Allocation |
| BS Life Frontline Equity-G | 21.85 |
| Sundaram Taxsaver-G | 18.35 |
| Sundaram Focus Reg-G | 17.90 |
| Kotak 30-G | 17.32 |
| Franklin India Prima Plus-G | 13.51 |
| Kotak Flexi Debt Regular-G | 11.07 |
| TOTAL | 100.00 |
| Top 5 Sector Allocation | |
| Sector | % Allocation |
| Energy | 21.30 |
| Financial Services | 18.08 |
| Technology | 15.77 |
| Consumer Non-Durable | 12.63 |
| Diversified | 6.08 |
Suggestion- Cut down the number of funds. A few well-rated funds will provide adequate diversification to your portfolio and will also make it more manageable by reducing the paperwork. With this, you will also be able to monitor your investments closely.
Risky Core holding
You have a very high allocation in Kotak Contra (20 per cent) and AIG World Gold Fund (9.17 per cent). This makes the portfolio risky.
Suggestion- Ideally, the core holding of an investor’s portfolio should be in large-cap-oriented diversified equity funds, while other thematic funds like gold funds should only have a small allocation of up to 5 per cent. Also, the allocation to contra funds should not be high as they invest in stocks that are out of flavour.
Lump-sum Investments
Of the total investments, 70 per cent is through lump sum.
| Portfolio Style Break Up | |
| Rank | % Allocation |
| Large Cap | 77.05 |
| Mid Cap | 19.49 |
| Small Cap | 2.21 |
| Not Classified | 1.25 |
| Top 10 Equity Holdings | |
| Stocks | % Allocation |
| Reliance Industries | 7.37 |
| Bharti Airtel | 5.98 |
| Oil & Natural Gas Corpn. | 4.73 |
| I T C | 3.78 |
| Hindustan Unilever | 3.72 |
| Infosys Technologies | 3.58 |
| HDFC | 3.57 |
| ICICI Bank | 3.51 |
| Larsen & Toubro | 3.31 |
| HDFC Bank | 3.10 |
Suggestion- Choose SIP over lumpsum investment. Investing through SIP is always advisable over investing lump sum, since one is relieved of the burden of timing the market. Also, SIP provides the benefit of rupee cost averaging. You don’t need to invest in a new fund every time you do an SIP (as has been noticed in your portfolio), you can continue the SIP in your existing funds.
Missing Debt Element
Your mutual fund portfolio lacks the adequate debt, which makes it quite risky and unbalanced.
Suggestion- Increase debt element. You need to have a proper asset allocation between equity and debt even within your mutual fund investments to provide an adequate balance to your portfolio. For that you can either choose a well-rated balanced fund or a well-rated medium-term, debt fund, allocating 10-15 per cent of your investment. Rebalance the portfolio once in six months to maintain the pre-determined asset allocation.
Low Large-Cap allocation
Your mutual fund portfolio has a low large-cap allocation, which makes it volatile and risky.
Suggestion- Increase large-cap allocation. Since you have a long-term investment horizon you should ideally have high allocation to large-caps as it provides better stability to the portfolio in the long run by reducing the downside risk during volatile markets.
Keeping all these considerations in mind, we have developed a model portfolio for you, which is fine-tuned towards the achievement of your medium- as well as long-term objectives.
