Restrict satellite part of mutual fund portfolio to 20-30%

Since they carry more risk, this portion of your portfolio should typically be restricted to 20-30% of the overall portfolio


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Is it possible to gift or transmit mutual funds held by me to my parents? I have some funds held in demat form and some in non-demat. I might go abroad on work for a couple of years, and I don’t want to encash savings.

—Nitin Kumbha

Fund houses allow the transmission of a scheme’s units to a different person only in the event of the demise of the primary unit holder. Hence, in your case, it would not be possible for you to transfer your holdings to your parents and get them back after a few years. If you are leaving India for a few years, you really do not need to such a transfer. You can leave your units invested as they are today, and redeem them when you return. The only thing you would need to do is to update your know-your-customer information to indicate that you are now a non-resident Indian. Depending on the country you go to, you might be restricted from making additional investments in these folios (for example, if you go to the US or Canada). But existing units will stay invested.

What are satellite and core funds in mutual funds? I am 23 years old and earn about Rs. 30,000 a month.

—Rajul Tyagi

The core and satellite approach to designing a mutual fund portfolio is an effective long-term strategy for investment. It combines the need for achieving market-linked returns with the ability to take opportunistic advantage of special situations that arise periodically. The core of the portfolio typically consists of stable funds with good pedigree and track record that cover the gamut of the market. Good large- and multi-cap funds will belong here. The satellite portion will contain more aggressive investment options. These could be risky schemes, such as recently launched funds, thematic or sector funds, and aggressive small- or micro-cap funds. Such funds have the potential to provide a returns kicker, or a specific flavour to the portfolio. Since they carry more risk, this portion of your portfolio should typically be restricted to 20-30% of the overall portfolio.

In your case, you can build such a portfolio with as few as 3-5 funds. If you are, for example, investing Rs.5,000 a month in a systematic investment plan portfolio, you could have a large-cap fund for Rs.2,000, a couple of diversified funds for Rs.1,000 each, and an aggressive sector fund for Rs.1,000 (the satellite portion of your portfolio). Please note that in such a design, while the entire portfolio needs to be reviewed periodically, the satellite portion would need more frequent review. For example, if you do an annual review of your overall portfolio, you should review the satellite portion’s performance twice a year, if not four times.

Can I invest in a lump sum and systematically (SIP) in the same fund? I have invested around Rs.35,000 this year in ICICI Prudential Tax Saving Growth Plan and want to start an SIP in it. I’m 28 years old, and earn Rs.50,000 a month. I can invest up to Rs.15,000 in mutual funds.

—Mrunal Barve

There is no restriction on investing lump sum in a fund or folio where you have an SIP running. If you have invested an amount tax-saving purpose, and want to start an SIP to take care of next year’s tax-saving plans in the same fund, you can do so. In fact, given that tax-saving funds are diversified equity funds, investing in them via SIPs is the preferred mode.

If you plan to invest the same amount next year as well, your SIP amount should be Rs.3,000 a month (to total Rs.36,000 in a year). Since you can invest more than that, you can invest the remaining amount into a balanced portfolio of funds such as Franklin India Blue Chip, UTI Equity Fund and Tata Balanced Fund.

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