Don’t allocate more than 20% of your portfolio in sectoral funds

Don’t allocate more than 20% of your portfolio in sectoral funds

I started investing in mutual funds (MFs) last year. I have been investing in systematic investment plans (SIPs) for 2,500 since May 2010 in ICICI Prudential Discovery Fund, HDFC Top 200, SBI Magnum Equity Fund and SBI Magnum Emerging Business Fund; 5,000 in Sundaram Select Midcap since May 2010; 3,000 each in IDFC Premier Equity Fund and DSP BlackRock Small and Midcap beginning November 2011. Is there any change required in my portfolio? I also want to invest an additional 8 lakh. Which funds should I choose and how much should I invest in each?

—Tushar

Regarding the lump sum investment, the decision on where to invest should be based on the time frame. If you are investing for less than a couple of years, you should stick to debt funds such as short-term bond funds. If your term is longer, you could go for equity-oriented balanced funds or broadly diversified equity funds.

Suggest one or two funds that invest mostly in fast-moving consumer goods (FMCG) and pharmaceutical stocks. My investment horizon is 8-10 years.

—Arindam Deb

Investing in sectoral funds such as FMCG or pharmaceutical funds is best done by people who are familiar with the industry and/or follow them closely. Regular investors should follow two principles while doing so: allocate a relatively small portion of their portfolio (less than 20%) to such funds and track the industry trends and the performance of the funds closely.

The sectors you have chosen, especially FMCG, have indeed done well over the past few years. SBI Funds Management Ltd offers funds in both sectors while ICICI Prudential Asset Mangement Co. Ltd offers an FMCG fund and Reliance Capital Asset Management Ltd offers a pharmaceutical fund.

Srikanth Meenakshi is founder and director of FundsIndia.com

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