Fund Talk: Avoid investing in funds with similar mandate :: Business Line

I have invested Rs 1,000 in the following funds through the SIP mode from July 2011:

1. HDFC Equity 2. HDFC Top 200 3. DSPBR Top 100 Equity 4. DSPBR Microcap 5. Franklin India Bluechip 6. Tata Dividend Yield and 7. SBI Emerging Businesses.

I would like to invest, additionally, Rs 1,000 each through SIPs in HDFC Children’s Gift Fund - Investment plan and ICICI Pru Infrastructure.

Please let me know about the correct course of action I must take.

Angshuman

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Though you have chosen a good set of funds for investments, there are a few flaws in the way you have constructed your portfolio.

First, you have invested in too many funds, which makes the portfolio too diffused. With Rs 7,000 as your total monthly SIP amount, you must not invest in more than 2-3 funds.

Second, you have invested in many funds with a very similar mandate, which will give rise to considerable overlap.

For instance, HDFC Equity and HDFC Top 200 are funds with an excellent long-term track record. But there is a considerable overlap in the stocks that they hold in their portfolio.

You can stay invested in HDFC Equity and park Rs 2,000 in the scheme and exit HDFC Top 200.

Again, DSPBR Top 100 Equity and Franklin India Bluechip are both large-cap funds. Both have been steady performers over the years.

Franklin India Bluechip has delivered slightly better performance than DSPBR Top 100 Equity. So park Rs 2,000 in Franklin India Bluechip and exit the latter.

Both DSPBR Microcap and SBI Emerging Business are mid-cap funds that have a fairly high risk profile, though they have delivered excellent returns over the past few years.

You can stick to SBI Emerging Business alone and invest Rs 2,000 there, or, if you want a stronger mid-cap fund that has delivered across market cycles over the years, you can consider IDFC Premier Equity and invest Rs 2,000 there.

You can retain Tata Dividend Yield or better still, increase investments in HDFC Equity to Rs 3,000.

HDFC Children’s Gift has a lock-in period of three years and is an equity-oriented balanced fund.

It has a good track record over the past 10 years and you can invest Rs 2,000 here. ICICI Pru Infrastructure, being a theme fund, is inherently risky.

Though it has performed well in the recent rally, it is advisable to avoid SIPs in theme funds, unless you have strong convictions on the sectors within the theme and can monitor them constantly.

***I am 43. I am investing Rs 1,000 per month through the SIP route in each of the following funds: HDFC Equity, HDFC Top 200, HDFC Midcap Opportunities, ICICI Pru Focussed Bluechip, ICICI Pru Dynamic, DSPBR TOP 100 Equity, Reliance Gold Saving fund and Rs 2,000 per month SIP in IDFC premier Equity from January 2011.

All funds are in growth option. Please let me know if any changes are to be made in my portfolio.

Gunjan Bharadwaj

You have invested in too many funds with a similar mandate. Also, there are too many funds in your portfolio. For the Rs 9,000 that you invest, you need not have more than 3-4 schemes for achieving your goals.

The other key flaw in your portfolio is that you have invested in too many schemes from the same fund house, which will deny you the benefits of investing across asset management companies which may have different styles.

There are three funds from the HDFC stable. You can retain HDFC Equity and invest Rs 3,000 there. You already have a mid-cap fund in IDFC Premier Equity which has a stronger track record compared with HDFC Mid-cap Opportunities. Thus, you can exit the latter.

You can retain ICICI Pru Focused Bluechip and invest Rs 3,000 there and exit ICICI Pru Dynamic. You can also exit DSPBR Top 100 as ICICI Pru Focussed Bluechip as a strong large-cap fund will suffice for you.

Please note that our suggestions to exit some of the above funds, most of which have good track records, are made to make your portfolio crisper and avoid overlaps.

Continue to invest Rs 1,000 in Reliance Gold Savings fund for the sake of diversification.

Review your portfolio periodically, say, once every year, and to take corrective action and to rebalance. We hope you have also made sufficient allocations in debt instruments such as FDs, PPF, RDs, etc.