I have invested in mutual funds through monthly SIPs of Rs41,000. Because of the market turmoil and my inability to stay invested, I plan to reduce my investments by half. Please advise me on the funds I must remain invested in. Also suggest a model portfolio.
Looking at the current market, our immediate reaction is to tell you not to offload your holdings now. You will lose heavily if you do so. If you have a long-term objective, don’t pull out of the market simply because it has fallen.
How to build a great portfolio
We suggest the following tweaks to your portfolio to make it work better for you.
• Number of funds: You don’t need all the 12 funds you have right now in your portfolio. A good portfolio need not be unnecessarily diversified. If you are halving your monthly investment from Rs41,000 to Rs20,000, we suggest you stick to around four or five funds.
• Market cap exposure: Your portfolio is currently tilted towards mid- and small-caps. We suggest you increase your large-cap holdings. You can raise your allocation to funds such as DSPBR Top 100 and HDFC Top 100.
Also See Investment balance (Graphic)
• Asset allocation: Your debt exposure is negligible. You must have a debt fund in your portfolio. This will help in curtailing the downturn in the equity market. Kotak Flexi Debt can be a good choice.
• Sector bias: Your portfolio is driven by thematic/sector funds, which constitute 47% of your fund holdings. The highest allocation (12.71%) is in Reliance Diversified power sector. There are three funds with a focus on the infrastructure theme: Tata Infrastructure, DSPBR TIGER and Sundaram BNP Paribas Capex Opportunities. Do not have a high allocation to sector or thematic funds. As for infrastructure funds, we suggest you stick to just one: Tata Infrastructure or DSPBR TIGER.
• Type of funds: You do have a good quality portfolio since eight of your funds (out of 12) are either five- or four-star rated. But as we stated earlier, you do not need that many funds in your portfolio.
• New funds: Avoid new funds. For instance, you have purchased Morgan Stanley ACE Fund and DSPBR World Gold Fund. Do you really want exposure to gold? Did you consider a gold exchange traded fund? Are you aware of the risks of gold stocks?
• Rebalance: Invest systematically and rebalance your portfolio once a year to ensure your equity:debt allocation is intact.
Graphics by Ahmed Raza Khan / Mint
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