STP / portfolio redistribution

POSTED BY Nitin Delhi ON April 22, 2013 2:59 pm COMMENTS (6)

Dear helpful experts (a rare breed),

I have a MF investment horizon of 20-25 years.
I wish to create a portfolio that requires minimum restructuring (once in 2-5 years).
I want to rebalance/restructure my existing MF portfolio ( approx 4 lakh) as per the above needs.

Q1 : I have chosen the following ratios

FT Blue chip          : 25%    Equity: Large Cap
HDFC Top 200       : 25%    Equity: Large & Mid Cap
HDFC Prudence      : 25%    Hybrid: Equity-oriented
?????????              : 25%   * PLEASE SUGGEST*

My horizon is long so am going mainly with equity. I have not choosen Index funds as their returns are less than the above mentioned funds.
I have EPF, some PPF and some FDs so am not much bothered about debt right now.
(FDs are some goals expected in the next 1 year or so)

Q1b: I am thinking for going for DIRECT funds because i’ll be invested for long term and i want to save on the expense ratio part. I ‘ll stick with 3-4 funds so it won’t be a difficult portfolio to maintain. Any thoughts on going direct ?

 

Q2: I have to rebalance/restructure my existing MF portfolio which is worth ~ 4 lakh.

So the plan is to redeem all my existing MFs and invest lumpsun in Liquid funds and radually transfer this amount to the 3-4 equity MFs listed in point 1.

I was thinking of STP to Liquid funds (to escape exit load) with Dividend option (to escape short term capital gain). I am aware of the high Dividend Distribution Tax that liquid funds have. Should i worry about that affecting my returns or just go with Debt funds ? (I am in 20% tax bracket)

Any other instructions you may have for people considering rebalance/restructuring.

 

Q3: STP – For approximately 4 lakh to be transferred from debt liquid to equity MF with long term horizon, should I transfer this over 12 or 18 or 24 months. How should i decide ?

Any thing else to be kept in mind when rebalancing/restructuring  my MF portfolio.

 

Sincerely
Nitin.


 



6 replies on this article “STP / portfolio redistribution”

  1. Dear Pattu, thanks a lot. I’m sharing what i have learnt from all of you over the years.

    thanks

    Ashal

  2. Dear Nitin, If the amount is already in Eq. funds although non performers, the redemption should be immediate & reinvestment should also be into target Eq. funds in lump sum. by switching to liquid funds, you are intrupting the compunding. It’s not fresh money. It was already invested in Eq. & you are merely changing your train from passenger to express.

    That’s how I look at it.

    The 4th fund can be quantum long Term Eq. fund.

    Thanks

    Ashal

    1. Ashal that is a terrific reply!

  3. Nitin Delhi says:

    @ MP

    and *FDs for short term goals (not EPF/PPF)
    ~4lakh = approximately 4 lakh.
    The total worth of my current MF portfolio (with 10+ funds) is around 4lakh and i want to redistribute this amount to just 4 funds. So MFs for around 4 lakh will be redeemed, invested in liquid funds, and gradually via STP route invested into equity.

    Maybe i was using the term re-balance incorrectly.

    1. If the ‘old’ MFs and new MFs have a common AMC a simple switch is enough there will not much change in the risk involved.

      For rest transferring periodically over 6 months from a SB acc is more than enough.
      For long term investing there is very little difference in risk and returns bet. STP and lumpsum (see the latest article in my blog for proof).

      If want to go for liquid funds choose liquid fund with dividend option as it is important to set off STCG and remove tax issues. DDT is unimportant as you are not going to pay it.

  4. PPF for short term goals?!

    What is ~ 4 Lakh?

    Your MF portfolio? or Amt you need to transfer from equity to debt?

    Do you want suggestions to redistribute AMONG (or TO) your equity MF funds?
    I don’t think what you want is rebalancing in the usual sense it is used.

    For long term goals you cannot have equity alone without debt. You need it for ‘rebalancing’ in the usual sense it is used.

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