Single sector exposure makes the portfolio risky

PORTFOLIO MAKEOVER

You have opted for some good funds with a proven track record. With five 5-star rated funds, your portfolio is high on quality. Since five of your funds are equity linked saving schemes (ELSS) with a lock-in period of three years, nothing can be done with these funds for now.

A significant aspect that you must make note of is that your portfolio is heavily skewed towards the energy sector with an allocation of 33 per cent. A very high allocation to a single sector makes your portfolio risky and imbalanced and the overall performance is too excessively dependent on solely one sector. This high exposure comes from your investment in one stock: Reliance Petroleum. Also two of your funds, Reliance Diversified Power Sector Fund and DSPML TIGER are high on energy. We suggest that you should you cut down your exposure to the energy sector.

Your portfolio is already fairly diversified so you don't need to do much on that front. To begin with, consider moving out from the above two funds to reduce your allocation to Energy. By doing this, your portfolio allocation to this sector comes down to 24 per cent, which is not too high. Also the number of funds will be simultaneously reduced to seven, from nine, making your portfolio easier to manage.

Since your portfolio is already diversified, please do not add any new funds. Also avoid lumpsum investments in the future and invest the amount through a systematic investment plan (SIP) into the two existing diversified funds - Magnum Contra and DSPML Top 100 Equity Fund. The SIP will give you the benefit of averaging out the cost of purchase.

Another aspect to be taken care of in your portfolio is its equity-debt component. You have a very high exposure of 88 per cent to equity and a mere 3 per cent to debt. This makes your portfolio too risky. Increase the debt component by adding a fixed income fund in your portfolio. You can also consider fixed deposits which are safer options with a return of around 7-8 per cent per annum. At least 15-20 per cent of your investment should be in debt.

Also, keep rebalancing your portfolio every year to balance out the equity-debt component.

In A Nutshell
SELL: DSPML T.I.G.E.R, Reliance Diversified Power
BUY: Magnum Contra (Rs 14,000), DSPML Top 100 (Rs 14,000)
START SIP: Magnum Contra (Rs 2,500/month), DSPML Top 100 (Rs 2,500/month)
INCREASE DEBT ALLOCATION: Invest in a fixed income fund (Rs 40,000)
The money to buy the new funds will come from selling your current investment in two funds (approx Rs 38,000) and the amount you have as surplus cash to invest (Rs 30,000).

Value Research