How to fine tune your portfolio

By Morningstar |  18-06-18 | 

Kindly advise me on constructing a suitable diversified portfolio of 5-6 funds. I have systematic investment plans in the following funds. All are growth schemes via the direct option. The amount invested is Rs 5,000 in each fund. 

  1. Aditya Birla Sun Life Frontline Equity
  2. ICICI Prudential Blue Chip
  3. ICICI Prudential Value Discovery
  4. SBI Blue Chip
  5. Franklin India Focused Equity
  6. SBI Small Cap

I have stopped SIPs in: 

  1. DSP Black Rock Small Cap
  2. UTI Mid Cap
  3. ICICI Prudential Equity & Debt
  4. HDFC Hybrid Equity

- Amlan

While constructing a portfolio, the asset allocation mix (i.e. the mix of various assets including equity, debt, gold, etc.) is considered as one of the key determinants of the portfolio’s performance, in terms of risk & return.

A suitable asset allocation is typically based on one’s investment horizon and risk appetite. 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 and above, then 70%-80% of your investment portfolio could be allocated to equity and 20%-30% to debt.

For the aforementioned investment horizon, it would be advisable to select one or two large cap and one small/mid-cap equity fund or diversified equity funds that invest in large, mid and small cap stocks in varying proportions based on the fund manager’s views.

Additionally, one can consider investing in an international equity fund, which invests in European or Asian equity markets. International equities provide exposure to different economic drivers (vis-à-vis Indian equities), thereby helping diversify one’s portfolio.

When selecting funds, it is advisable to consider their performance over at least the previous 3-5 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).

One should consult his/her financial adviser before making investments in mutual funds.

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