Mutual fund investments through SIPs
11/7/2011 9:46 AM Monday
- By T SRIKANTH BHAGAVAT
MD, Hexagon Capital Advisors
Q. I am a subscriber of DSIJ and read your article regularly. I find your guidance very useful and realistic. I have been investing Rs 2500 per month through an SIP in the following funds since January 2010. I have chosen the Dividend Reinvestment Option for all funds, except for the IDFC Imperial Equity Fund Plan - A Growth Scheme.
1. HDFC Top 200
2. DSPBR Top 100 Equity Regular
3. UTI Opportunities
4. Morgan Stanley A.C.E.
5. Birla Sun Life Frontline Equity
6. Reliance Regular Savings
7. IDFC Imperial Equity Fund Plan - A, Growth
Please review my portfolio and suggest:
a) Whether the funds selected by me are proper
b) Whether the Dividend Reinvestment Option selected by me is proper, or whether I should switch over to the growth option
c) Whether I need to tweak my portfolio
- P P Dhamangaonkar, Pune
Currently, 57 per cent of your total funds are allocated to Large-Caps through SIPs. These are HDFC Top 200, DSPBR Top 100 Equity Fund, UTI Opportunities and IDFC Imperial Equity Fund Plan A. As such, the allocation is at a relatively low risk (among equities) – even if your Multi-Cap funds allocate half to Mid-Cap stocks, your overall allocation to Mid-Cap would have reached only20-30 per cent.
We recommend holding your investments in HDFC Top 200 and DSPBR Top 100, as these are funds with a consistent track record of success, delivering a CAGR that falls between 15-25 per cent over the last three-five years. On the other hand, we recommend exiting IDFC Imperial Equity. IDFC Imperial Equity has a much lower CAGR (than its peer group) of only 26 per cent and 10 per cent in the three and five year category.
A worthy inclusion would be the ICICI Prudential Focused Blue Chip Fund. Though running a concentrated portfolio, it has managed to deliver higher returns than other Large-Cap funds and also to keep volatility down. Note that the fund is just over three years old, but given its pedigree, it can be trusted to remain consistent in its philosophy and management. In the Multi-Cap space, Morgan Stanley A.C.E. and Birla SL (BSL) Frontline Equity have both been running higher risk portfolios, and adjusted for risk, have delivered lower returns than their peer group. Frontline though, has outperformed the Sensex. Similarly, Reliance Regular Savings Fund, which also falls into the Multi-Cap space, has been an underperformer, with a negative CAGR of 19.32 per cent and a relatively high standard deviation. Therefore, we suggest an exit from this fund too.
These SIPs can be redirected to the UTI Dividend Yield Fund, which is a low risk fund with a high risk-adjusted return. Another inclusion from the Mid-Cap space can be the IDFC Premier Equity Fund, which has delivered returns of 39 per cent (three years) and 22 per cent (five years) compounded annually but with a low standard deviation, indicating low risk. As to whether you should be in growth or dividend reinvestment, considering the present tax laws, there is no difference. For your size of portfolio though, I do think you could reduce the number of funds to just three or four.
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