Review investments regularly

I am 43 and have invested in stocks and mutual funds, (details given). I also have Rs 5 lakh in bank deposits and invest Rs 60,000 a year in Ulips. I have no loans due and live in my own house. My wife also works and invest separately. Our son is 15. I want to know if my portfolio is good or needs to be tweaked? I plan to work till retirement (17 years later).

Rathnesh Rao

COVER YOUR BASE
You have insurance in the form of Ulips, which are a mix of insurance and investments and do not do justice to your protection needs. Though your only dependant is your son, who can be financially taken care by your wife, of if something happens to you, we still suggest you take a term life insurance. This is the cheapest form of insurance, that covers against death. A good starting point will be to take a cover 10 times your annual expenses. In case of any eventuality, your dependents will get the money that should take care of 10 years of their expenses.

Though you do not come across as a risk-averse investor, your investment pattern reflects inconsistency. You have investments in most financial assets. Your portfolio would have done a lot better than the 13.5 per cent annual returns that it has earned over the years, if you were active with your investments and tracked these. You definitely need to beef up your life and health insurance needs.
 

Holdings	Investment (Rs)	Returns (% p.a.)
Top 5 fund holdings
HDFC Top 200	45,000	23.78
Taurus Tax Shield	35,000	25.90
DSPBR Top 100 Eq	40,000	21.51
Magnum Contra	15,000	31.38
IDFC Small & Midcap Eq	30,000	27.28
Top 5 stock holdings
RIL	1.54 lakh	16.62
Coal India	46,765	16670.43
Ranbaxy Labs	39,000	8.25
Sobha Developers	1 lakh	-26.88
DLF	26,250	-14.02
Portfolio
Fund	2.40 lakh	19.10
Stock	3.69 lakh	8.57
Total	6.09 lakh	13.49
As on November 23, 2010

JUMPSTART
You need to realise the opportunity cost of not having been a part of two stock market rallies in the past decade, despite being invested through it. Lesson: Investing works well if done systematically. You do have enough investible surplus that, could be invested via systematic investment plan (SIP) to take advantage of market cycles and create a good corpus over the long term.

PORTFOLIO REVIEW
Your portfolio comprises 198 stocks, including the stocks in your fund holdings. Though diversified, it is heavy on the energy sector. You do not have a planned portfolio comprising core funds, especially large-cap ones and bluechip stocks, which give the necessary stability to the portfolio, irrespective of the market direction. IPO investments work well if there is long-term value in it. Else, exit on listing. Likewise, new fund offers (NFOs) work well if they meet portfolio needs that are otherwise missing.

MAKEOVER
You should move out of non-performing funds such as AIG Infra and Franklin Infotech. Try creating a core portfolio with large-cap funds like DSPBR Top 100 (holding). Consolidate further with better rated large- and mid-cap funds such as HDFC Top 200 or Birla Sun Life Frontline Equity Plan A. Build a satellite portfolio of mid- and small-cap funds like Birla Sun Life Dividend Yield Plus or DSPBR Micro Cap and other sector funds with compelling rationale.

Your hold some good stocks, but also have some duds. It is time you think of exiting Tanla Solution, Sobha Developers and DLF. The loss you have had in these investments should be a lesson to be active with investments and have an objective with which an investment is made. Do take stock of your Ulips. Exit them if they are faring poorly and the lock-in period is over. For better realisation on bank deposits, it may be a good idea to park them in liquid funds, which are not only tax-efficient but better performers also. Finally, have a financial goal, invest regularly towards it, track investment performance and review it once every six months.

CASE ANALYSIS

• Your mutual fund portfolio includes many NFOs. Though not bad, these should be bought only if there is a compelling reason for having them in your portfolio.
• Having too many funds that replicate each other's investment objective does not amount to diversification. Build a core portfolio. Only then diversify into new themes and sectors.
• For a portfolio to perform, you must review performance periodically. In case of stocks, you need to be active in buying and selling them.
• Your stock portfolio has IPO investments which work well if you exit these on time. An invest-and-forget strategy does not work for all kinds of stocks.
• Invest regularly. The opportunity cost of being irregular is immense.

HEALTH CHECK
Take a health insurance plan for yourself and include your wife and son in it. Family floater plans are good to have, especially at your age, when medical conditions start knocking suddenly.