Balancing Your Investments
Q: I have been a subscriber of Dalal Street Investment Journal for the past seven years. My wife and I are both professionals, and have a 17 year-old daughter and an eight year-old son.
Our present investments are as under:
1. Mutual Funds:
UTI Dividend Yield Fund (G) - Monthly SIP of Rs 52000
UTI Mastershare Fund (G) - Monthly SIP of Rs 20000
UTI Master Value Fund (G) - Monthly SIP of Rs 12000
UTI Opportunites Fund (G) - Monthly SIP of Rs 28000
HDFC TOP 200 Fund (G) - Monthly SIP of Rs 23000
HDFC Equity Fund (G) - Monthly SIP of Rs10000
HDFC Mid-Cap
Opportunities Fund (G) - Monthly SIP of Rs 10000
IDFC Premier Equity Fund (G) - Monthly SIP of Rs11000
ICICI Prudential Focused
Bluechip Equity Fund (G) - Monthly SIP of Rs 5000
ICICI Prudential Discovery
Fund (G) - Monthly SIP of Rs 5000
2. One-Time Investments:
For our son: UTI CCP balance as on 31/03/2011 – Rs1 lakh
For our daughter: UTI CCP balance as on 31/03/2011 - Rs 8 lakh (Invested Rs 2 lakh around 15 years ago in CGGF, Raj Laxmi and CCCF)
3. PPF Balance as on 31/03/2011:
Rs 2 lakh each in the accounts of our daughter and son and LICPremium in Komal Jeevan, Bima Kiran and Jeevan Kishore - Rs15000 per year for each
4. PPF Balance of self, wife and HUF account: Rs 8 lakh
5. LIC Premium for self and wife: Rs1.2 lakh per annum
In addition to these, I have a huge exposure in equities.
Kindly advise on my overall investments and help me rebalance my MF SIP if required.
- Rajesh Gupta
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A: Since you have not mentioned your age, we assume that you are around 45 years old. Financial planning works efficiently when it is attached to financial goals and resources. Since you have not mentioned your goals, we have provided a broader investment plan for you to build a portfolio.
Asset allocation is the most important aspect for any investment portfolio, as 95 per cent of the returns are generated through efficient asset allocation and not through product or scheme selection.
Investments are broadly categorised into debt and equity. Accordingly, as per your assumed age, 50 per cent of your investment should be in debt and the remaining 50 per cent can go into equity. This ratio could be dynamic, keeping the market and the economic scenario in view.
In debt, along with LIC and PPF, you can also invest in listed tax-free bonds like those issued by the railways and the NHAI, which should give you eight per cent tax-free returns with 100 per cent safety and liquidity. Listed NCDs (Non-Convertible Debentures) like Religare Finvest, Muthoot Finance, SRTF, etc. are attractive investment alternatives with their respective risk and reward. You should switch your investments in UTI CCP, CGGF, Raj Laxmi and CCCF with an investment in HDFC Prudence Fund.
In mutual funds, we recommend category-wise investments. While you have made a reasonably good fund selection in your existing portfolio, yet, one must give priority to category and the percentage of allocation in various schemes. Here, we have suggested an investment plan in the broader categories of mutual funds, with the ideal allocation.
Category | Ideal Allocation (%) | Actual Allocation (%) |
Large-Cap & Mid-Cap | 70 -75 | 49 |
Mid-Cap | 20-25 | 51 |
Index Funds | 5-10 | 0 |
Currently, your higher exposure to Mid-Cap funds is increasing the volatility and risk of your total mutual funds portfolio. Hence, we advise you to reduce the risk by changing the allocation of the scheme as suggested in the following portfolio. Adding index funds will give stability to your portfolio. Category allocation is very important to generate good risk-adjusted returns.
The portfolio of schemes suggested here will help you align your existing mutual fund investments to the category allocation recommended. You can discontinue the systematic investments in the other funds.
Funds | Category | Allocation (%) |
UTI Opportunities Fund | Large & Mid-Cap | 10-12 |
HDFC Top 200 Fund | Large & Mid-Cap | 12-15 |
HDFC Equity Fund | Large & Mid-Cap | 12-15 |
HDFC Mid-Cap Opportunities Fund | Mid-Cap | 12-15 |
IDFC Premier Equity Fund | Mid-Cap | 12-15 |
ICICI Prudential Focused Bluechip Equity Fund | Large-Cap | 12-15 |
DSPBR Top 100 Equity Fund | Large-Cap | 12-15 |
HDFC Index Fund | Index Fund | 5-10 |
Make sure to review the funds’ performance regularly to keep your portfolio wisely poised.
For your overall portfolio investment, you can consider Gold ETFs as an alternative to investing in gold. However, the allocation to this should be five to 10 per cent only.
Your have not mentioned your risk cover details, but we hope that you are well or adequately insured to keep your family safe in case of any uncertainty. Look for term plans in case you need to increase your risk cover.