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Ensure diversity in investment style when choosing MFs

  • While putting together a portfolio, it is not enough to picks funds from different categories
  • One must ensure diversity of investment styles among the funds chosen

I am 40 years old and want to build a retirement corpus. I invest 6,000 each in Franklin India Focused Equity Fund, ICICI Prudential Bluechip Fund, ICICI Prudential Value Discovery Fund and Quantum Long Term Equity Value Fund. I intended to invest equally in large-cap, multi-cap, mid-cap and small-cap categories. However, over a period of time, the nature of these funds has changed. Please suggest one fund in each category (or new suggested categories) for 15-20 years, assuming a high risk-taking capacity. Also, I would be redeeming my 15-year PPF corpus next year. Please suggest ways to add the proceeds to funds.

—S.K. Abraham

While putting together a portfolio, it is not enough to picks funds from different categories—one must ensure diversity of investment styles among the funds chosen. In your current portfolio, three of funds follow a value investing strategy (of picking good companies at a fair or lower price). It would be better if you have one or maximum two out of the four funds following such a strategy, while the others can look for growth in the market. I would recommend you keep the ICICI Prudential Bluechip fund, and choose between Quantum Long Term Equity fund and Franklin India Focused Equity fund (both in the diversified category). For a mid-cap fund, you can go with L&T Mid-cap fund, and for a small-cap fund, you can choose Franklin India Smaller Companies fund.

Regarding deployment of PPF corpus that you will redeem next year, it would be easy to invest the proceeds in your four funds using systematic transfer plan (STP). Please divide the corpus into four parts and invest them in liquid funds in ICICI Prudential, Franklin Templeton (or Quantum), L&T, and (again) Franklin Templeton AMC. From there, you can set up STPs to your equity funds on a monthly basis. Please ensure that the quantum of money you transfer every month is such that the entire STP schedule gets completed in 12 months from the date of start.

I invest around 33,000 in about nine funds, with 80% in equity and 20% in debt. During review, I noticed that a HDFC Midcap fund went down by 10% overall. Now that the markets are flat, should I remain invested in it or should I exit and book a loss because of poor performance?

—Abhishek Gupta

I assume you are referring to the HDFC Mid-Cap Opportunities fund. This is a stellar fund in this category and you should continue investing in it. Although this fund has gone down in the past year, that negative performance happened during a very bad time in the markets for mid-cap stocks. To compare, the benchmark Nifty Midcap 100 TRI went down by close to 15% in the same period. Even the peer funds in this category went down by close to 13%. Such is the nature of the mid-cap segment. If such volatility makes you contemplate selling, then you should consider lowering the overall risk profile of your portfolio.

Also, I note that you have nine funds for a 33,000 portfolio—that is a lot of funds and you will do well to consolidate your holdings to 5-6 funds. You can use this consolidation exercise to wean yourself off high-risk funds such as mid- or small-cap funds.

Srikanth Meenakshi is co-founder and chief operating officer, FundsIndia.com. Queries and views at mintmoney@livemint.com

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