Should I reduce duplicate funds in my Rs 50,000 MF portfolio?

Ans: Hello swami. The detailed overview of your MF portfolio indicates over-diversification with 20k SIP. Hence, I would suggest reconsidering, pruning, and reshuffling your portfolio. 

As part of the portfolio reshuffle, make sure to have AMC diversification as well.

Limit yourself to 1-2 schemes in each category.

I can see several schemes in different categories for each AMC. I recommend reconsidering the scheme for Navi US scheme to better scheme in same category.

Ans: In bluechips, please continue with ICICI Pru Bluechip fund growth

Most of the funds are decent!

Ans: All are good funds; post consolidation, you may increase your investment in all of them proportionally

Ans: Your portfolio reflects a diverse mix of funds across various sectors and market caps. As a Certified Financial Planner, your allocation seems well-distributed. However, it's crucial to periodically review and rebalance your portfolio to ensure it aligns with your financial goals and risk tolerance.

Consider assessing the performance of each fund relative to its benchmark and peers. If any fund consistently underperforms or deviates from its investment objective, you may consider replacing it with a better-performing alternative. Also, ensure your portfolio is not overly concentrated in any particular sector or theme.

Remember to stay focused on your long-term investment objectives and avoid making frequent changes based on short-term market movements. Regular monitoring and adjustments, if necessary, will help you stay on track to achieve your financial goals.

Ans: You’re investing Rs. 15,000 monthly across various mutual funds, with a plan to increase this by 10% annually. Your investment horizon is 15 to 20 years, and you consider yourself an aggressive investor. However, the current structure of your portfolio raises concerns about over-diversification, especially with a focus on index funds and direct plans.

Potential Risks of Over-Diversification
Diluted Returns: Having too many funds, especially in similar categories, can dilute your returns. Since most funds overlap in the stocks they invest in, this might not provide the diversity you aim for.

Complex Portfolio Management: Managing a large number of funds can be cumbersome. It becomes challenging to track performance, rebalance, and make informed decisions.

Index Fund Overload: Your portfolio includes several index funds, which might limit your exposure to actively managed funds that could potentially offer higher returns.

Need for Strategic Allocation
To achieve optimal growth, it’s essential to streamline your investments and focus on quality over quantity. A well-balanced portfolio can deliver better returns and be easier to manage.

1. Focus on Core Funds (40% of Portfolio)
Flexi Cap and Large Cap Funds: These funds should form the core of your portfolio. They provide stability and growth by investing across large, mid, and small-cap companies.

Recommendation: Concentrate your investments in a couple of strong-performing Flexi Cap and Large Cap funds, rather than spreading across multiple funds in the same category.

2. Selective Mid and Small Cap Funds (30% of Portfolio)
High Growth Potential: Mid and small-cap funds offer high growth potential but come with higher risk. As an aggressive investor, a significant portion of your portfolio can be allocated here.

Recommendation: Choose one or two well-performing mid and small-cap funds to avoid redundancy and focus on high-quality funds.

3. Limit Index Fund Exposure (20% of Portfolio)
Consider Actively Managed Funds: Index funds mirror market indices and may not outperform during volatile times. Actively managed funds, overseen by experienced fund managers, can potentially generate higher returns.

Recommendation: Reduce the number of index funds in your portfolio. Instead, focus on actively managed funds that align with your long-term goals.

4. Include a Multicap or Contra Fund (10% of Portfolio)
Diverse Exposure: A multicap or contra fund can provide diverse exposure across various market caps and sectors. Contra funds, in particular, take a contrarian approach, which can be beneficial in unpredictable markets.

Recommendation: Keep a portion of your investment in one good multicap or contra fund to balance the risk.

Streamlining Your Investment Strategy
Given the long-term horizon, your investment strategy should aim for growth with manageable risk. Here’s a streamlined approach:

Consolidate Funds: Reduce the number of funds, focusing on the best-performing ones in each category. This makes tracking and managing easier.

Rebalance Annually: As you increase your SIP by 10% annually, review your portfolio to ensure it remains aligned with your risk appetite and goals.

Monitor Performance: Regularly monitor the performance of your funds. If certain funds consistently underperform, consider switching to better alternatives.

Final Insights
While your enthusiasm for investing is commendable, a more focused and strategic approach will serve you better in the long run. By consolidating your investments into fewer, higher-quality funds, you can maximize returns and make portfolio management more efficient.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in