Mutual Funds Portfolio Review

POSTED BY Shashi ON December 29, 2010 3:33 pm COMMENTS (14)

Hi,

I have been investing in the following Mutual Funds since January 2010 via Monthly SIP mode.

1. HDFC Top 200 Fund (Growth) – Rs. 2500/- per month.

2. Reliance Regular Saving Equity – (Growth) – Rs. 1500/- per month.

3. DSP BlackRock Balanced Fund – (Growth) –  Rs. 1500/- per month

I want to increase my investment up to 20K per month. Should I addremove, or increase the amount in the above funds.

My investment horizon is around 7– 10 years.

Regards,

14 replies on this article “Mutual Funds Portfolio Review”

  1. Santosh Navlani says:

    @Ramesh,

    We are both sticking to our approaches here – yours is towards passive & while mine is staying informed & active (please note it doesn’t mean churning or changing funds every 3, 6 or even 12 months).

    No point in bugging other readers here with our judgments. Lets park it here 🙂 OR we can take & exchange notes over twitter, if you are there or over email. I tweet from @santoshn while my email is santosh DOT navlani AT gmail.com

    1. Ramesh says:

      @Santosh.

      Surely. To each his own. 🙂

      Ramesh

  2. Ramesh says:

    @Santosh

    Thanks again for your views. I think we are on completely different pages as far as approach is concerned. But on same page in trying to get the optimal returns! 🙂

    1. Point 1 is absolutely correct. That is what I am pointing at your suggestion which gives 3 similar funds in the same group (by any site).
    2. Expense ratio of 1.8-2.2 is almost same. And can change in the next quarter for any fund. I agree.
    3. A well diversified “low turnover”, low expense, “consistent and long performing fund manager & fund house” MF is a very reasonable bet. No one can predict future, not us, not the fund manager, and not the advisors. In my humble opinion, it is better to have a SINGLE or max TWO funds of above characteristics. After having them chosen carefully, just ride them through for a long period of time. Put money in them more during downturns. This way you will make more money rather than
    – trying to identify the best performing funds (lot of information is available).
    – then comparing the return of the best with the current.
    – then “fuming” that why did I select these duds and not those “picks”
    – then correcting the “past mistake” in the “present”.
    – after 6 months or 1 year (the proposed regular review period, though daily NAV checking would be the norm during this time also), again repeating the same steps. Over a long period of time, this will diminish your returns rather than increasing it.

    In that sense, Shashi’s portfolio is great.
    One very good large-mid cap fund (HDFC top 200).
    One very good flexi-cap or multi-cap fund (Reliance RSF-equity).
    One very good hybrid equity oriented fund (DSP Balanced).

    Surely, one can say that there is a better fund than them (by some or other criterion). But will it be better than the already good ones. We both agree that it is not possible to state that at present!

    Being inactive is usually better and far more difficult. But I would advise that only, without creating more confusion.

    Ramesh

  3. bharat shah says:

    i am not writing the anwer of the query, but like to point out that ‘morningstar.co.in’ is better site having tool for analysing your thought of mutual fund portfolio to know exact structure of the portfolio, i.e. % age of individual equity shares, sectors, style (large-mid-small, value-growth-blend matrix). this would help to form our m.f. schemes having overall proportion for large cap and mid-small cap shares in our thought of mf portfolio.

  4. Santosh Navlani says:

    @ramesh,

    Thanks for responding. I appreciate and agree with all the points above. However, I would like to clarify some points & provide the basis of the diversification with the MF portfolio –

    1. I have met many investors who have almost all similar funds in the portfolio (e.g. buying DSP Top 100, HDFC Top 200 & Birla Sun Life Frontline Equity). While going with the 3 similar funds may not harm on downside, it comprises the optimality in terms of returns as you are paying 2-3 different fund managers for employing similar startegy towards managing ones investments.

    2. On expense ratios, I am in same boat as you. When I say I don’t look at expense ratio, I mean I “don’t mind” 0.2% extra fees for consistent high performance. Also, 10% difference may not be appropriate to say as base for 0.2% should be taken on the differential in the returns over 3-5 year period.

    As I said, I appreciate all your points. I don’t recommend in anyway to micro-manage the portfolio or funds, but if there are certain things which aren’t advisable to continue for longer periods (e.g. having 10-15% exposure to 1 stock or 35-50% exposure to 1 sector) & one does have way to identify that, it may just be better to correct them.

    Hope we are on same page 🙂

    Santosh

    1. dilthoms says:

      @santosh,

      why do u say: “you are paying 2-3 different fund managers for employing similar startegy towards managing ones investments.” is a bad idea? In any case expense ratio is in percentages, so if i invest X amount in 3 funds or 3X amount in 1 fund, i pay the same money. Then why not have some diversity in case one fund house makes bad decisions? Is it not a good idea to have 2 funds per category?

      1. moneysights.com says:

        @dilthoms,

        i would appreciate if you can elaborate the on the query…for what i understood from it, here is my explanation –

        When i say one should not pay 2 fund managers for similar strategies i mean that buying HDFC Top 200 & Birla Sun Life Frontline Equity. Their portfolio isn’t vastly different from each other…so, if you were to invest Rs. 10,000 in each every month, then you are actually riding on 2 similar fund managers. Its better to have 2 funds in each category but with it they need to be 2 different funds – for e.g. if you are buying HDFC Top 200 & then its better to plug it in a Birla Sun Life Dividend Yield rather than Birla Sun Life Frontline Equity.

        i hope i answered your question. For more, you can use our “Get a Portfolio”, spend sometime on it…and you will see this explanation in terms of supporting illustrations. rather than this plain text 🙂


        Santosh | moneysights.com

        1. dilthoms says:

          @santosh,

          Thanks for the clarification. I see what you mean now. I was under the impression you were suggesting one should buy only one fund from each category. Does moneysight provide a tool to compare how similar 2 funds are?

          1. dilthoms says:

            @Santhosh

            It seems to me that moneysights currently does not have a way to compare funds to analyse similarity. After you enlightened me about similarity in funds I looked at my funds and checked their portfolio for similarity. I do SIP with equal amounts in the funds below. My choice of funds was based on taking 2 good performers from each category. Currently I have only 1 fund under balanced due to lack of money to invest more. As and when I have money, I plan to add HDFC Prudence to the category.

            From what I could analyse based on the holdings of these funds, they are not so similar. (I see some overlap, but not so much as, say HDFC Top 200 and HDFC Equity). Can you give your valuable opinion about the choice of funds and if there is any similarity that i missed? Thanks.

            Large Cap Funds
            ICICI Pru Focused Blue Chip -Retail
            Franklin India Blue Chip

            Large and Mid
            HDFC Top 200
            UTI Dividend Yield

            Mid and Small
            IDFC Small & Midcap Equity
            HDFC Midcap Opportunites

            Balanced
            HDFC Balanced

  5. Ramesh says:

    @ Santosh

    thanks for your views.

    My views:
    1. If you have reasonably good long term performing funds in your portfolio, there is no need to change / chop / churn them at all. Micromanaging the individual aspects of the funds, like sectoral or individual stock, does not increase future performance statistically.
    2. The present 3 funds in the portfolio are among the top 1 or 2 funds over the last 5 years in their respective groups, even after including the relative lower performance this year. This will happen every year. This year’s top 1-year performers will be superceded by others invariably the next year.
    3. You can check SIP returns in valueresearchonline.com
    4. Regarding the downside protection, equities by definition will provide volatile returns. Overall, good performance of the portfolio (all funds+stocks+bonds,etc) is what is important over long period of time. A 1-year time is too short for equity fund – outperformance is more likely due to luck rather than skill in this time period. 3-year or 5-year or even 10 year (but should include one or more bull and bear phases) performance is a better indicator than a 1-year performance.
    5. A 0.2% in 2% is actually 10% increase/decrease. So, why to change a good fund with lesser expenses to another good fund with more expenses. I do not think there is any advantage. In that sense, quantum long term equity fund (with 1.5% expense and great return and good downside protection is a much better fund).

    Ramesh

  6. Santosh Navlani says:

    @ramesh,

    1. If you see my reply to @shashi, I clearly said he can continue with the same funds. However, the reasons to recommend the 2 options were purely from the standpoint of going a little more aggressive given his long term horizon.

    2. I have not removed @shashi’s existing funds altogether. In option 1, RRSF-Balanced is there which is a Balanced counterpart of RRSE that @shashi presently has. In Option 2, I have retained both RRSF-Balanced as well as HDFC Top 200. What I have changed is the allocation of the funds to address greater mid-cap exposure as well as ensuring diversification of the portfolio across sectors & stocks.

    3. Coming to the specific of “bettering” returns, I didn’t mean that the portfolio of MFs that I recommended gives a guarantee on that.
    However, its a safe assumption (based on past performance of the funds that I have recommended), that IF THESE FUNDS have outperformed their respective benchmarks as well as Nifty/SENSEX while PROTECTING the downside sufficiently, they may do so in future as well. But, there is a higher probability of these funds giving better returns but no one can guarantee.

    4. Lets look at the performance of the respective portfolios –

    Annualized returns of @shashi’s existing portfolio has been ONLY 2.29% while that of Option 1 & 2 have been 9.77% & 8.97% respectively. I couldn’t get hold of a tool that would tell me what has been the SIP returns of the @shashi’s portfolio & of Option 1 and 2.

    Nevertheless, I guess this addresses your concern of how changing funds would be beneficial.

    5. The portfolio options that I have given is well diversified across sectors, stocks & asset classes of equity/debt. You can check that if @shashi was to buy Option 1 or 2, no stock in @shashi’s portfolio would have more than 7% exposure & no sector would have more than 25% exposure. I am not sure if @shashi’s existing portfolio adheres to these principles (we strongly recommend these checks while managing or advising on portfolios)

    6. Yes, the expense ratios of the fund is more than 2%. But frankly, if the fund is delivering returns consistently, an expense ratio difference of 0.2% per year is justifiable.

    7. I don’t have numbers to agree or disagree with your last point, but the portfolio option1 & 2 have large-mid-small cap in 27-47-17% and 36-40-16% proportion respectively. So, its a multi-cap strategy inclined towards mid & small cap.
    Further, as you may know there are no standard definitions of large/mid or small cap companies. The way we define large cap or mid/small cap is little different. We don’t have artificial ceilings of defining mid-cap as stocks having market cap of more than a fixed number (say, Rs. 1,000 or 5,000 crore). Before assigning any stock as large/mid/small, we look at average market cap of the company for last 1 year & compare it with market-cap of constituents of Nifty, CNX Mid-cap & Nifty Junior to classify the stock as large/mid/small. So, the break-up above may look completely different if we apply fixed number definitions.

    Hope I answered your queries. Feel free to reply/ comment. If I have gone wrong on somethings, I would be glad to correct.

    Thanks!

    Santosh

  7. Santosh Navlani says:

    Shashi,

    Your choice of Mutual Funds is good. All the fund are good to make further investments.

    However, if I see the portfolio composition, almost 90% of portfolio’s component is lying in Equity. Also, maximum exposure out of this 90% is in Large-cap stocks, which is again a good strategy to adopt.

    Since you mentioned that you have a very long-term horizon, you have a luxury of going aggressive on the Equity part of the portfolio by taking a slightly larger exposure in mid-cap stocks by choosing either a flexible fund or a mid-cap dominant mutual fund. It will improve your returns significantly, if you choose the mid-cap funds that have proven to protect downside in case of a bearish market environment.

    There are 2 options, I can recommend to you (however, decision would be yours :-)) –

    Option 1 – 80% Equity, 20% Debt as the Asset Allocation Plan for Rs. 20,000 per month investment
    1. Rs. 5,000 per month in Reliance Regular Savings Balanced Fund
    2. Rs. 5,000 per month in HDFC Children’s Gift Investment Plan
    3. Rs. 5,000 per month in Birla Sun Life Dividend Yield Plus
    4. Rs. 5,000 per month in IDFC Premier Equity Plan A

    Option 2 – 90% Equity, 10% Debt as the Asset Allocation Plan for Rs. 20,000 per month investment
    1. Rs. 3,000 per month in Reliance Regular Savings Balanced Fund
    2. Rs. 5,000 per month in Birla Sun Life Dividend Yield Plus
    3. Rs. 5,000 per month in IDFC Premier Equity Plan A
    4. Rs. 5,000 per month in ICICI Prudential Discovery Fund
    5. Rs. 2,000 per month in HDFC Top 200

    Both the options have given similar returns & have demonstrated similar down-side protection. Since, I am not aware what your intended asset allocation plan is, I have given you 2 separate approaches. See what suits you.

    Happy Investing!

    Santosh

    1. Ramesh says:

      @Santosh

      Just a few queries regarding your suggestions:

      1. Would changing the funds give better returns in future. You have removed all the previous funds in option 1 and 2 in option 2. And in turn given 4 new funds. I cannot understand the reason for this churning. What makes you feel that the proposed funds will give better returns than the funds already there in the portfolio!

      2. Giving more funds in the same group (BSL Dividend Yield Plus, IDFC Premier Equity, ICICI discovery) will not increase the overall return.

      3. Reliance RSF is a flexi-cap fund (with a large cap tilt).

      4. All the 3 funds have a near 2% expense ratio. So another reason not to change them.

      5. The present asset allocation is also majorly into equities.

      6. Over long periods (3-year and 5-year), on an average, the multicap and large-mid cap funds have performed better than mid-small cap funds. In secular bull runs, mid and small caps perform well but that performance is more severely hit in a single correction / bear-phase.

      Regards,
      Ramesh

  8. Ramesh says:

    @Shashi

    Just increase the amount in these 3 funds only. No need to add/subtract any funds. eg. 8k in HDFC 200, 7k in Reliance RSF and 5k in DSPBR Balanced.

    Keep it simple. Keep investing.

    Ramesh

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