How I see this mutual fund portfolio
Why does an investor end up with a swollen bilateral fund portfolio? This is a question I ask everytime I see one. I want to know the reasons, specially the investor’s thinking in doing so.
Here’s how a bilateral fund portfolio is looking.
First, some quick observations:
The portfolio has 43 unique schemes, 63 if you count the variations
Almost every category of funds finds a place in the portfolio; It looks like a collector’s edition.
Investor is under the influence of recent past performers and star ratings for fund selection
There is little clarity on when to invest and how much to invest. There are SIPs, STPs running withal with Lumpsum investments.
Attempt to switch to uncontrived plans, wholesale. Basically, the same mess at a lower cost.
There’s increasingly to this bilateral fund portfolio
As I drill deeper, I uncover some increasingly portfolio insights.
All, except one, schemes have less than 10% weightage in the portfolio (even counting for growth & uncontrived plans as one). The sad part is that no one scheme has the power to make any significant positive contribution to the portfolio.
The windfall typecasting is skewed. The investor, whose risk profile is aggressive, is probably not enlightened of either the risk profile or the windfall allocation.
His exposure to probity can be upto 80% in the overall investment portfolio. The current overall portfolio has just half of it in probity and rest is non equity. Which is fine, if this is tactical allocation for the current environment, but that doesn’t seem to be the case.
Several hybrid probity funds are present in the portfolio. There seems to be no other reason except past returns. Unknowingly, while this reduces risks, it moreover brings spare typecasting to stock-still income / immuration to the portfolio.
Now, 43 schemes is large by any stretch of imagination. There are 15 flexi/multicap funds in the portfolio. Of course, many large caps too. Not to forget the overkill in mid and small caps.
There is no thought process on what unique strategy any fund brings to the portfolio. That qualifies for over^(n) diversification or diworsification.
I recall my favourite statement.
Unstructured thinking and the costs
Yes, that’s the reason any investor gets into the mess as above. One big downside of such an unstructured, swollen portfolio is that you may end up paying a lot increasingly in transactions financing and taxes, thus remoter well-expressed your returns.
Not to mention the sheer number of decisions that you need to take in such a portfolio can freeze you. Now, if you are lucky, it can still ride you, but isn’t that taking a lot of chances?
Keep it simple
It doesn’t need rocket science to build your financial plan and a decent investment portfolio that will momentum you towards your goals.
Here are some steps that you can use.
- Decide your goals, what you want your money to do for you
- Take an towage of where you stand today
- Understand the gap between today and the future needs (run some numbers)
- Align your windfall typecasting in line with your risk profile
- Don’t wilt too warlike with your returns expectation; Instead, focus on saving more.
- Figure out the instruments (Equity MFs, Stocks, Debt MFs, FDs, EPF, PPF, etc) to suit this typecasting and investment needs; Let them be unique to serve your needs. Don’t fall for the marketing. About 10 investments (including the govt sponsored ones and 2 to 3 probity bilateral funds) should help you do the job.
- Review your plan and investments on a six-monthly or yearly understructure to know that you are on track. Make suitable adjustments, as required.
Easier said than done. I know.
Yes, it can finger overwhelming at times and for some investors. Hence, if you can’t do it by yourself, it is worth it to go to an investment adviser and seek the right guidance.