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| Suggested Funds Portfolio | | | Weightage | Fund Type | | ABN Amro Flexi Debt | 7.5 | Equity Fund | | Birla Frontline Equity | 11 | Equity Fund | | Birla Sun Life Tax Relief 96-D | 4.02 | Tax Saving Fund | | DSPML T.I.G.E.R. Reg-G | 10 | Equity Fund | | Fidelity Equity-G | 10 | Equity Fund | | Kotak Flexi Debt | 7.5 | Debt Fund | | Magnum Global-G | 10 | Equity Fund | | Magnum Multiplier Plus-G | 10 | Equity Fund | | Reliance Growth-G | 10 | Equity Fund | | Reliance Vision-G | 10 | Equity Fund | Sundaram BNP Paribas
Select Focus Reg-G | 10 | Debt Fund |
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| The good news is that the portfolio is high on quality. With 70 per cent exposure to large cap stocks through quality equity funds and direct investments in good companies, Bansal's portfolio is right on track quality-wise. |
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However, he needs to check on the over allocation to a single company. Reliance Industries alone accounts for 18 per cent of the portfolio.
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| The portfolio is largely dependent on a single sector as well. Nearly 30 per cent of the portfolio is invested in the energy sector. High exposure to a single company and/or sector should be avoided because it makes the portfolio's performance largely dependent on it and hence, increases risk. |
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| The one thing missing from the portfolio is a debt component. Debt provides stability helps to rebalance the portfolio when required. To further optimise your portfolio we have devised three plans of actions. Each plan has been evaluated properly. Bansal can choose from one of the three options: |
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PLAN 1:
DIRECT EQUITY INVESTMENTS |
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| Generally, an investor should invest directly in equities only if he has the expertise of managing and researching the various companies himself. One must be confident about investing directly, as it requires a high risk appetite and a heart which can handle market gyrations. |
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| If you are comfortable with this, go ahead and build a complete equity portfolio (direct investments). Considering the fact that most of your investments are invested directly in equities, you can redeem your remaining investments from mutual funds and shift them to select high quality stocks. We do not see the need of mutual fund investments, if you can manage the full equity portfolio with ease. |
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| In your case, consolidation is the key. For investment in equity, a portfolio of around 20-25 stocks would suffice. Your equity portfolio already consists of investment worthy companies which you can consider and shortlist for investment. For the same, you should gradually liquidate your investment in mutual funds and stocks. |
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| Do ensure that if you exit funds or stocks before one year of holding, you would be liable to pay short-term capital gains tax of 15 per cent on gains. So do take note of the date of investing before exiting and reinvesting your current holdings. |
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PLAN 2:
ACTIVELY MANAGED EQUITY FUNDS |
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| Consider this plan if you are willing to keep things simple and do not want to get into the hassles of monitoring your investments on a regular basis. Opt for mutual funds, as they are nothing but an indirect way of investing in the stock market. |
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| By solely investing in quality funds, you would also ensure that you achieve proper diversification as required and also benefit from the professional management that they offer. |
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| To implement this strategy, you should exit your direct stock investment and then invest in equity mutual funds. Again, this procedure should be gradual and you should avoid investing the entire corpus in one go. Opt for a systematic investment plan (SIP) and spread your investments over the coming 6-12 months. |
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| To construct a pure fund portfolio, choose not more than 10-12 well rated equity diversified funds after properly evaluating their past performance. You have already invested in quite a few well performing funds. |
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| We recommend a portfolio of 11 funds (including two debt funds) for your investments. We have only included one new fund i.e. Birla Frontline Equity and have dropped funds like Reliance Diversified Power and Sundaram Capex Opportunities as these are riskier sector funds. |
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PLAN 3:
INDEX FUNDS |
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| Another option worth considering is exchange traded index funds for investment. Index funds are a passive way of investing in a market index like Sensex or Nifty. Such funds invest in underlying stocks of an index, according to their respective weightage in that index. |
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| This way, the return generated by these funds is in-line with the movement of associated market index. The funds being ETFs are traded on the bourses and provide you with an easy exit and entry options, just like direct investments in stocks. |
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| For this, we are recommending a few well performing exchange traded index funds which have Nifty, Junior Nifty or Sensex as their benchmark. ICICI Prudential SPIcE, NIFTY BeES are some of the ETFs we shortlisted for you. You can consolidate your investments and move them to index funds and selected debt funds. |
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| DEBT ALLOCATION & PORTFOLIO REBALANCING |
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| Now let's take up the issue of debt allocation to the portfolio. Irrespective of the option you choose from the above three, we recommend you invest in debt as well. |
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A considerable debt component is very important to reduce the downside risk, provide stability, and rebalance the portfolio as and when required. You can decide and fix the equity-debt allocation that suits you best (say 85 per cent equity
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