I am 70 years old and a regular investor in mutual funds since 2005. I hold investments of ₹50,000 in DSP Blackrock Micro Cap Fund, ₹90,000 in HDFC High Interest Dynamic Bond Fund, ₹1,31,000 in HDFC Regular Savings Fund, ₹2,10,000 in ICICI Child Care Study Plan, ₹90,000 in ICICI Focussed Bluechip, ₹1,80,000 in ICICI Short Term Debt, ₹35,000 in IDFC Classic Equity, ₹40,000 in IDFC Premier Equity, ₹68,000 in L&T Business Cycles, ₹84,000 in L&T India Prudence, ₹45,000 in L&T India Value and ₹1,60,000 in Quantum Long Term Equity Fund.

Since 2013, I am also investing, through the Systematic Transfer Plan, ₹1,500 in DSP BR Focus 25, ₹1,000 in ICICI Banking & Financial Services, ₹4,000 in ICICI Value Discovery, ₹2,000 in IDFC Classic Equity, ₹2,000 in IDFC Premier Equity and ₹1,100 in PPFAS Long Term Value. Now I wish to have a more compact portfolio. Can you help me?

M Sujaata

You must have made healthy returns on your portfolio in the last 12 years. But there are a couple of grey areas in your query, therefore here are some assumptions on which the response is based.

One, that the numbers you have provided represent the investment originally made by you, and not their current value. The current value would have been more useful to analyse the portfolio. The second assumption is that you are not dependent on your mutual fund portfolio for your monthly income or living expenses, post retirement.

First and foremost, you need to be clear about the financial goals or objectives for which are you making your investments. If your lumpsum investments/SIPs are to accumulate a healthy corpus for the future or for your heirs, it can have an equity component. If it is to tide over emergencies, you should cash out of equities and own a pure debt portfolio. Assuming it is the former, the following changes are suggested.

You do own rather a large number of funds in your portfolio, with 12 older schemes and 6 new schemes in which you have running SIPs. You should own fewer funds — 4 or 5 would be an ideal number.

Also, given your age profile, it would be desirable to have a lower equity allocation. Today, the returns on your equity schemes are bound to look good with the stock markets at a new high.

But should markets correct, you could lose a significant portion of your current capital. As equities have performed very well in the last three years, it would be a good idea to lock into some of the equity gains and rebalance your portfolio in favour of debt funds.

A rough calculation based on the details provided shows that about 22 per cent of your overall portfolio is invested in debt funds, about 16 per cent in balanced funds and the remaining 62 per cent in equity schemes, both in the form of earlier lumpsum and recent SIP investments.

Instead, a 70-30 or even 80-20 mix in favour of debt investments is desirable. For the equity portion of your portfolio, selling the following funds to re balance your asset allocation is suggested.

One, small and mid-cap funds have had an exceptional period of outperformance in the last three years. They also tend to deliver volatile returns. In order to reduce risk, you could sell DSP BlackRock Microcap Fund and IDFC Premier Equity. This also applies to the investments you have made through SIPs.

Two, thematic funds provide limited-period opportunities only and require very active tracking. For this reason, L&T Business Cycles and ICICI Pru Banking and Financial Services are bad fits for your portfolio too. Three, to streamline further, exit L&T Prudence Fund and IDFC Classic Equity.

These exits will lock in gains on about 30 per cent of your portfolio. You could also discontinue SIPs in IDFC Classic Equity, DSP BR Focus 25, IDFC Premier and ICICI Pru Banking.

You can invest all the proceeds in either a debt fund (Birla Sun Life Short Term) or a balanced fund (HDFC Balanced).

After this rejig, you will have equity holdings in ICICI Pru Focussed Bluechip, L&T Value Fund, Quantum Long Term Equity, HDFC Balanced and ICICI Pru Child Care (which is a balanced fund). Your debt funds will continue as it is.

You will have SIPs in ICICI Pru Value Discovery and Parag Parikh Long Term Value. Based on what goals you are investing towards, you can consider lowering your SIPs from the present ₹11,500 per month.

Send your queries to mf@thehindu.co.in

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