I would like your opinion on my portfolio. I am an NRI. My investments in equity mutual funds are Rs 5 crore. My returns are impressive. I have booked a profit of Rs 1.2 crore till date; a return of around 18-20% (average).
Currently, I have 42 funds in various categories; most are 3, 4 and 5 stars. I have invested in them manually through Direct schemes.
- 5 LC: 10%
- 7 LMC: 15%
- 9 MLC: 20%
- 7 Value/Contra: 20%
- 7 MC: 15%
- 2 SC: 15%
- 5 Hybrid-AH: 5%
- Vikram
Let’s look at it from various angles.
You have a huge allocation to equity.
We think this is important as the mix of various assets (equity, debt, gold, etc.) is considered as one of the key determinants of the portfolio’s performance in terms of its risk and return.
A suitable asset allocation is typically based on one’s investment horizon, risk appetite and investment goal. Generally, longer the investment horizon and higher the risk appetite, higher would be the allocation to equity. For example, if the investment horizon is 10 years or above and risk profile is Aggressive, then 70% to 80% of your investment portfolio could be allocated to equity and 20% to 30% to debt. Hence, it is advisable that you consult a financial adviser to ascertain your risk profile, based on your risk tolerance and risk-taking ability, and the appropriate asset allocation that suit your requirements.
The information provided by you does not include details about your investment horizon, goals and investments in other asset class like fixed income funds, international funds or gold funds/ETF. Historically, over the long-term, these asset class have had low correlation with Indian equities. Hence, including these asset class in your portfolio will help you diversify the risk (reduce volatility) of your portfolio’s performance. Thereby, helping you to improve the chances of achieving your goals and the wealth creation potential of your portfolio.
We advocate diversification. But that does not mean you need to go overboard with the number of funds. Diversify, but smartly.
What we believe you should do is reduce the number of funds in your portfolio. Forty schemes is way too difficult to track and manage. Moreover, too many schemes from the same category, that are investing in similar stocks, can reduce the returns generated from that category, and consequently by the portfolio.
You mention the funds being 3, 4 and 5 star rated. But that is past performance. While investing in funds one should also make a forward-looking qualitative assessment of them. Fund research reports provided by Morningstar helps in doing that as it gives funds a rating of Gold, Silver, Bronze, Neutral or Negative. It helps the investor in understanding the likelihood of a fund performing well in the future; over the long term.
When selecting funds, it is advisable to consider their performance over at least the previous three years to five years. This along with studying calendar-wise performance vis-à-vis benchmark indices (like Sensex, Nifty, etc.) and peer group would indicate consistency across time frames and market cycles. Additionally, you could consider the fund’s AUM (AUM should be greater than Rs 500 crore.) and period of existence (longer the better).
To evaluate mutual funds across categories, one can look at Morningstar’s star ratings and analyst ratings for funds here.
- Consider professional help
Since you have so many funds and the value of your portfolio is huge, you should consider the services of a financial adviser to streamline your portfolio.
Read this post to help get a perspective: Do you need a financial adviser?
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