MF portfolio realignment – A primer

Over the last few posts, I have covered practically all aspects of MF investments and you should be in good shape if you are starting off to create a MF portfolio from scratch. However, as some readers reminded me, most of us are already having an MF portfolio and some of us are having SIP investments in several funds. Different portfolios for different goals can also lead to people holding more funds than is either necessary or desirable.

The good thing is you can realign your portfolio and get into a logical allocation quite easily. As I have covered the basic logic of my suggested portfolio structure and SIP / one time investments I will not repeat them in this post. You can read these posts here and here. In this post I will outline a simple method by which you can realign your portfolio.

Step 1 : Be clear about your intended portfolio structure:

  • For the long term you need just 4 funds – a large cap fund, a mid cap fund, a multi cap fund and a small cap fund. If you want to hedge your bets you can add an International fund, mainly US based.
  • You do not need to have any Balanced funds, Sector funds or Thematic funds.
  • Always go for Direct funds as the lower cost will enhance your returns significantly over the long run.
  • Remember you need only 1 portfolio for all your goals and not a separate one for each goal.

Step 2: Map your current portfolio to the above portfolio structure:

  • Check if the funds you hold are aligned to the above portfolio. If not then discard them logically from your portfolio.
  • For the aligned funds, check if they are suitable for your portfolio. Read about how to select funds here. If any of the funds are not suitable then discard these.
  • We will decide what to do with the discarded funds later on.

Step 3: Get to your new portfolio structure:

  • Take whatever you have got from step 2 and add other funds based on the portfolio structure and the selection method.
  • Now you have s set of 4-5 funds in your portfolio. In all of these your investment value is either zero or equal to the earlier investment, in case you are retaining any of your earlier funds.

Step 4: Decide on your investment amount per month:

  • To begin with use a SIP calculator to check what should be your monthly investment. You can take any rate of return between 10 and 15 % based on your comfort level.
  • You can start by putting equal amounts in all 4-5 funds. However, if you prefer a fund type over another then you can tweak with the monthly SIP amounts. It does not matter a great deal, as long as you have got the portfolio correct.
  • Increase the SIP amount every year based on the availability of extra money to invest.

Step 5: Redeem the discarded funds at the right time and invest into your new portfolio:

  • Redeem your discarded funds at a time when it seems right. There is no exact formula but you can observe the trends and take a call. For example, if the Nifty reaches a level between 8800 and 9000 now it will be a good time to redeem the funds that you do not want to be in any more.
  • There is no rush in this, your investments are growing even if you have discarded the funds logically from your portfolio. Once you have redeemed the funds be in cash or keep the money in a liquid fund, till it is time to buy.
  • Invest the above money through one time purchases of the funds in your new portfolio at an appropriate time.

As you can see from here realignment of the portfolio is a fairly simple exercise, once you are clear about the mechanism. If you feel that you need to do it, the right time to start is NOW. In case you are not invested in the right funds then any further investment in them is completely senseless.

In case you have any questions on realigning your portfolio, comment on this post and I will be happy to clarify.

Interested readers may pls follow my blog on email by clicking on the relevant button on the right hand panel. I will shortly be stopping the practice of posting the links in different Facebook groups. Following the blog will ensure you get intimated whenever there is a new post.

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6 thoughts on “MF portfolio realignment – A primer

  1. Dear Mr.Roy,
    Aim senior citizen aged 65.What is the option between debt/FMP/balanced funds for me other than my regular F.D’s..?

    Like

    • Dear Mr. Subramanian,

      Are you looking at regular income from your investments or do you want your money to grow? For regular income MIP will be a good choice, Dividend option of Arbitrage funds can also work.

      For growth look at Balanced funds which will be suitable for your profile.

      Like

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