Mutual Fund Portfolio Rebalancing

POSTED BY J ON April 16, 2011 11:13 pm COMMENTS (2)

Hi,

I have been investing Rs. 12,000/- per Month in the below given Portfolio since January 2010.

  • HDFC Top 200 : 3,000/-
  • Birla Sunlife Frontline Equity : 3,000/-
  • DSP BlackRock Top 100 Equity Regular : 3,000/-
  • Reliance Growth : 2,000/-
  • Birla Sunlife Mid Cap Fund Plan A : 1,000/-

I plan to discontinue my SIP’s in Reliance Growth and Birla Sunlife Mid Cap Fund, as they haven’t been performing well in comparison to other Mid Cap funds in the same category. I intend to transfer all the amount invested in BSL Mid Cap Fund to BSL Frontline Equity via STP. However, I will not withdraw the amount invested in Reliance Growth. Is my decision to rebalance the portfolio correct or not? Below please find the planned rebalanced portfolio:

  • HDFC Top 200 : 3,000/-
  • Birla Sunlife Frontline Equity : 3,000/-
  • DSP BlackRock Top 100 Equity Regular : 3,000/-
  • ICICI Prudential Discovery : 1,500/-
  • IDFC Premier Equity : 1,500/-

I want to increase the monthly investment from 12,000/- per Month to 15,000/- per Month. Please suggest, if I should distribute Rs 3,000/- in the above mentioned rebalanced portfolio or should I add anothe fund? If yes, then please suggest the fund name and the reason behind the same.

Also, please share the importance of having a Multi Cap fund in a portfolio. How different are the Multi Cap Funds like UTI Dividend Yield/ Quantum Long Term Equity from the Large/ Large & Mid Cap funds like HDFC Top 200/ DSP Black Rock Top 100 etc?

Thanking you for your suggestions in advance.

Kind Regards,

J

2 replies on this article “Mutual Fund Portfolio Rebalancing”

  1. Ramesh says:

    @ J,

    You seem to have some mis-conceptions.

    1. Rebalancing is said in terms of debt and equity part of the portfolio. So if you intend to shift from one equity fund to another, it is NOT rebalancing. It would have been in case you transferred from equity to debt or vice versa.

    2. You have 3 similar funds in the name of DSP top 100, hdfc top 200 and bsl frontline equity, with similar mandates. That is actually atleast 1 extra fund in the same group. but that you need to decide. There are people with 1 fund who have managed very well and others with 3-4 are also fine. In general, the more the funds, the lesser the chances of outperforming the market.

    3. There are many who hold the view that reliance growth and bsl midcap are very good funds. also equally are in the favor of idfc premier equity and icici discovery. and there is not much to choose between the two. And chasing returns is the surest way to underperform in the long term. So in my view, you should not at all change the funds. since the two funds have underperformed, there are more chances that they will outperform in the future (but in realistic terms, you cannot predict which of the funds will outperform in the future).

    4. The naming convention of Mid-small cap and large-mid cap and multicap funds is largely arbitrary. The classifying websites can change the naming of fund from one to the other based upon their data. To confuse more, multicap funds are also subdivided with having a large-cap oriented multicap and similar other confusing terms. Overall, you should find out the investment mandate of the particular fund, look at their investment managers and fund group and other selling strategies. and then decide upon the funds.

    In terms of strategy, it is better to either differentiate the large-cap and mid-cap funds in your portfolio or keep multiple multi-cap funds. Mixing all of them, will more likely confuse them.

    – Since you have already segregated the large and mid-cap funds, my suggestion will be NOT to add any more fund. You can actually remove one of the large cap fund and redistribute the money.
    – Put all the extra money in the mid-small cap space presently. Since they have underperformed!

  2. ashal jauhari says:

    Dear J, Rebalancing can be done any time based upon one’s personal requirement & the performance of the portfolio. Regarding your selection of funds IPru Discovery & IDFC Prem. Eq. in place of Rel. Growth & Birla Midcap is OK. Regarding the increase of mly. amount from 12K to 15K, you may opt a multicap fund like Quantum Long Term Eq. or DSP Eq.

    The main benefit of Multicap fund is the underlying portfolio which is not limited to a single cap or theme or sector. Based upon the performance & potential for future, fund manger may shift money from Large to mid to small cap & vice versa.

    Thanks

    Ashal

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