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Before choosing mutual funds, decide your goals, time frame and asset allocation

Differentiating between investing styles or marketcap segments is important in deciding a portfolio, monitoring it or choosing the right strategies

I am 30 years old. My goal is wealth creation. My risk appetite is aggressive. I have been investing in equity-linked savings schemes (ELSS) for the past 3 years. Here are the details: Axis LT Equity Fund-Regular (for 3 years); DSP Tax Saver-Regular (2 years); and Reliance Tax Saver-Regular (3 years). My returns are moderate. I also invest in Mirae Asset India Opportunities- Regular; Kotak Select Focus; Motilal Oswal MOSt Focused Multicap 35 Fund; Reliance Small Cap-Direct; L&T Emerging Fund-Direct; and Mirae Asset Emerging Bluechip Direct-Growth. However, there is so much portfolio overlap between these funds—Mirae Asset India Opportunities and Kotak Select Focus (48%); Mirae Asset Emerging Bluechip and Mirae Asset India Opportunities (47%); Kotak Select Focus and DSP Tax Saver (44%).

I want to invest in direct funds but I am confused about which funds to continue and which to stop. Is it advisable to invest in both Mirae Asset India Opportunities and Mirae Asset Emerging Bluechip funds? How about investing in ABSL Pure Value fund instead of Mirae Asset Emerging Bluechip? Is Invesco Contra fund good? Can I include it in my portfolio instead of Kotak Select Focus or Mirae Asset India Opportunities?

I need to correct the over-diversification in my portfolio and reduce the fund count.

—Balaji Koneti

While your choice of funds is good, you have not differentiated between their investing styles or strategies or marketcap segments. This is important in deciding a portfolio, monitoring it or choosing the right strategies. As a direct investor, you must dig deeper to understand a fund’s strategy. If that is difficult, get some help from an adviser.

Coming to your portfolio, I do not know what you mean by overlap. If you mean the stock holding, that will be true of most top stocks in most portfolios. The key is the weight the fund has in different stocks and different sectors. Mirae Asset India Equity (as it is now called) has a different investing style from Kotak Select Focus. The latter has a focused approach to stocks and sectors. The Kotak fund has different weights to sectors than Mirae. Also, the Mirae fund is more conscious of valuation than the Kotak fund. Both are good choices and should be part of a core portfolio.

Mirae Asset Emerging Bluechip was a mid-cap fund and is now transitioning into a mid- and large-cap fund. It is entirely different in its marketcap segment compared with Mirae Asset India Equity, which is large-cap biased. DSP BR Tax Saver looks for tactical opportunities, takes bets and exits. It is much more dynamically managed than Kotak Select Focus. Also, the DSP fund is a tax-saving fund. Unless your need is to save taxes, you should focus on the Kotak fund.

Before choosing funds, decide the goal you are investing for, your time frame and the asset allocation. Then decide the categories of funds that will fit your requirement. For instance, in your portfolio, you have three funds with a mid-cap or small-cap bias—L&T Emerging Businesses, Mirae Asset Emerging Bluechip and Reliance Small cap. While we do not know the amount invested in them, a 30% exposure is sufficient to generate higher returns for your portfolio and limiting volatility. But before consolidating, assess the metrics stated above and then build a portfolio with a mix of large-cap diversified, mid-cap and some debt funds.

Among your tax funds, other than DSP BR Tax Saver, you can consider exiting the others if you have completed 3 years. Among other equity funds, assuming you have a time frame of not less than 5 years, Kotak Select Focus, Mirae Asset Emerging Bluechip, Motilal Oswal MOSt Focused Multicap 35, and Mirae Asset Emerging Bluechip should suffice for systematic investment plans (SIPs). You could consider adding a value or contra fund as your investment increases. Also, based on your time frame, you must consider some short-term debt funds to diversify into other asset classes.

I am 31 years old and have five SIPs for long-term goals. The funds are: Axis Long Term Equity Fund-Direct Growth (since 27 months); SBI Blue Chip-Direct Growth (17 months); Franklin India Smaller Companies Fund-Direct Growth (17 months); Mirae Asset Emerging Bluechip Fund-Direct Growth (1 month); and Aditya Birla Sunlife Advantage Fund-Direct Growth (1 month). I plan to stay invested for at least 20 years. Should I reshuffle my portfolio?

—Arpit Dangayach

You are presently investing Rs33,000 every month across a range of funds. Every month, 42% of your investment goes to mid- and large-cap funds, 21% to a large-cap fund, another 21% to a small-cap fund, and the remaining 16% to a tax-saver fund (Axis Long Term Equity is a diversified tax-saving fund). Please note that some of these categorizations could be subject to change due to the recent streamlining of funds by asset management companies. As of now, you have quite an aggressive portfolio with 100% equity allocation, which is fine for the long-term investment horizons that you are shooting for. Please make sure you stay invested not just during bull market phases but also during volatile conditions. Also, get your portfolio reviewed annually, especially since some of your funds are good performers today but have not been consistent in delivering returns.

Srikanth Meenakshi is co-founder and chief operating officer, FundsIndia.com.

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