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An ideal mutual fund portfolio (Indian market specific)…

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Objective:

  1. Create a portfolio that can yield year-to-year 20% over a period of time.
  2. 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 choice of funds

My choice of funds

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.
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6 thoughts on “An ideal mutual fund portfolio (Indian market specific)…

  1. Uday, u r the fin guru dude.
    Thanks for taking time and sharing this info.
    Keep it up.

  2. Hello
    I have invested in some mutual funds and ULIPS.
    I am 38 yr old single male.Right now unemployed. I want to know how is portfolio and what is needed to make it a balanced one?

    below are details of mutual fund and insurance i have taken .
    details are

    1.ICICI Fusion fund series II- Rs 1.5 lakhs in March 2007

    2. HSBC Freedom Indian Equity – 10,000 Dollars(Approx RS 4 Lakhs in MARCH 2006)

    3.HDFC PRUDENCE FUND SIP- Rs 3000 per month till 2 yrs Via SIP-Sept 2008

    4.SBI MAGNUM CONTRA FUND SIP-Rs 4000 per month till 2 yrs Via SIP- started at Sept 2008

    5.Franklin Templeton India Pension Plan SIP-Rs 1500 per month till 3 yrs. SIP started at May 2009

    6.LIC ULIP INSURANCE POLICY-money plus-paid 3 yrs premimum of Rs 60000(Rs 20000 per year)- started in march 2007

    7.Bajaj Allianz ULIP Policy unit gain- paid 3 yrs premimum of Rs 60000(Rs 20000 per year)- started March 2004 .stopped paying premium now.

    I m thinking of investing in NEW PENSION SCHEME ? NPS

    Are my investment options good enough?
    PLS REPLY AT THE EARLIEST
    urs truly
    Shiraz

    • Disclaimer: I’m not a financial advisor. But a humble investor undergoing financial evolution. My recommendations is as follows:

      1. Switch ICICI Fusion fund series II -> HDFC Top 200 or Reliance Growth Fund
      2. HSBC Freedom Indian Equity -> Continue
      3. HDFC PRUDENCE FUND -> Continue
      4. SBI MAGNUM CONTRA FUND -> Continue
      5. Franklin Templeton India Pension Plan -> I don’t have insight into it.
      6 and 7. continue them as they are.

      Finally, I guess your timing of starting the SIP is good, so should not be worried. However, I suggest that you do some research on the funds you’ve chosen and compare them with its competation (similar funds) to assess which one is better.

      Hope this helps, Uday.

      Alternatively, you can contact Parag Karia +91-98450 22818 who is a financial advisor i’m associated with since a decade.

      • Hello Sir,
        This is in refernce to your reply regarding my portfolio query.
        For points 6 and 7 (Ulips of lic money plus 180 plan and Bajaj Allianz unit gain ) ,should i leave them as it is or continue paying yearly premium in them.
        Secondly point 2 is HSBC FREEDOM OFFSHORE FUND INDIAN EQUITY not HSBC Freedom Indian Equity Fund.

        Pls reply
        Regards
        Shiraz

  3. Dear sir , I am AJITH 29years….
    Have SIPS of Rs 2000 each in SBI gold fund, HDFC top 200, IDFC premier EQUITY & BIRLA SL dividend YIELD for 2 months(all growth OPTIONS).
    Will increase SIP in HDFC T200 to 4000 next year & increase all SIPS by 20% annually. Looking forward to join one more SIP Rs 2000 in a LARGE CAP fund (UTI DIVIDENT YIELD or uti opportunity or ICICI PRU FOCCUSSED BLUE CHIP or birla frontline equity or DSPBR top 100 )…. WHICH AMONG THE ABOVE IS SUITABLE FOR ME…. is it well diversified… is it ok to have 2 dividend yield funds… SHOULD I MAKE ANY CHANGES…
    Please give your valuable suggestions on my portfolio… please guide.

    • Hi Ajith,

      Usually I do not do recommendations, as I’m not a certified financial planner. Most of my experience is from the experiments I’ve made with the money I’ve worked hard to earn. Hence, I’ll take a disclaimer that please do your thorough research. I tell that ‘coz, what works for me, might not work for you.

      IMHO, the following funds are pretty good, HDFC Top 200, IDFC Premier Equity. Since you’re looking for a Large cap, I’ll go with DSPBR Top 100. Another point of view is, have few funds. IMO, these 3 funds will suffice your needs. You don’t have to buy any other funds. You can additionally top them up each year. This way, you’ll have few funds to monitor and switch if required in the future. At the same time, these funds have proven track records, and have been faring well even when markets have tanked.

      Hope this helps, -Cheers, Udy.

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