- Create a portfolio that can yield year-to-year 20% over a period of time.
- Keep the portfolio as simple as possible (5 funds maximum)
Factors to choose the right fund:
|ConsistencySince the launch of the fund, how is it performing?||Ability During downturn, how does the fund perform?||Adaptability How the fund’s portfolio changes depending on the market conditions?|
Analysis: Let’s take a look at the snapshot from the top performers as of today, though they are reported best, obviously, they do not become the right choice, why? the top performer slot is just temporary, today’s top performer may not be the best performer in long run. Hence will apply the above criteria to determine the right choice.
After spending the whole day, I found that every situation can turned into opportunity if we use as per our requirements, the below list is constructed.
My ideal portfolio choice is to have 5 funds maximum and nothing more, nothing less; this keeps the portfolio simple to manage and change as and when the right time comes. Honestly I’m not there yet in terms of an ideal portfolio as it has 12 funds and the recent market conditions has challenged me from keeping it ideal, but will be there soon.
2 large caps, 2 mid caps and 1 balanced fund – pretty good for now and we’ll evaluate it over time and see how it goes. For now my criteria has been to select few funds that has good track record say at least 25% (pushing it a little over stated objective) and the above ones came up as good bets. Accept for Reliance Growth, rest all the funds have significantly given +ve returns even during 2008 and hence I believe that they will continue to give good returns moving forward.
Finally the 6th fund – a sector based choice; this one is a tough bet, however depending on various news and developments in the country one can make an educated guess.
Usually I do not suggest sector funds for one prime reason, they are very situational. For instance, today there has been a hint to boost Infrastructure in India; check out http://www.moneycontrol.com/mccode/news/article/news_article.php?autono=400677&special=mkt_topnews
and recently there have been newsletters sent by various asset management companies (few of them starting new fund offers) and few of them presenting a use case for strong growth in this sector; which makes me to believe that we should take this opportunity (as asset managers would have done their homework and we should take the hints) to ride the wave and make some profits. If you feel comfortable and have some funds, I guess you should consider this. I suggest you to look into ICICI Pru Infrastructure, Reliance Infrastructure or even UTI Infrastructure fund … I’m not betting 100% on them, however, some money into it will help to make some good returns. As well, there are other sectors which you can watch out and my sincere suggestion is that sector funds should be less than 20% of your portfolio.
Overall, the coming year seems to be good and I wish you good luck to ride the wave and make some profits.
Comments from my friends:
1. From Srinath (sent by email)I also have DSP Blackroc top 100 equity growth that I like both as a fund house and as a large cap – has shown good performance across the years.While implied I may bring two other dimesnions to your document – the performance in relation to the approproate benchmark to give a sense of what good perfromace means and the fund manager record/approach/philosophy where available as a qualititative filter.I am bullish about the infrastructure sector in India as the country cannot move forward with out it ( as Narayana Murthy put it we a re two decades behind China). So I believe we dont have a choice but invest and improve and so I do have ICICI Pru Infra.