The portfolio which you need to have for your MF is dependent on the stage of life at which you start to build it. In the previous post we had discussed Aggressive portfolios which are really suited for investors who have more than 20 years in their investment horizon. For such a person, focus on mid cap and small cap oriented MF is a logical choice.
What happens when your time horizon is reduced to say 15 years or so? This is quite possible as many investors have not looked at building up an MF portfolio till the time they are 35 or so. In such a case, their time horizon is probably 15 years – on the positive side, they will probably be able to invest more as their starting income base is higher. In such a situation the Aggressive portfolios we had in the last post will not be an ideal solution for them. Investors Guide, suggests a different model for these profile of people, termed as the Growth portfolio.
The essence of the growth portfolio is to balance the risk and reward, keeping in mind the time horizon available to the investor. You are trying to manage your risks here and at the same time you want to optimize growth. You therefore look for funds which do both of these. One other important factor in managing risk/returns is diversification. An MF focused on international opportunities will give you this.
The portfolio recommended by Dhirendra Kumar of ValueResearch Online is as follows. Note that all the 5 funds suggested have an equal weight of 20 %.
- Motilal Oswal NASDAQ ETF 100.
- ICICI Prudential Dynamic.
- PPFAS Long term value.
- Quantum Long Term equity.
- Birla Sun Life equity.
Notice the differences from the Aggressive portfolio. All funds here are either looking actively for value or are focused on large caps with lower risk. There are also two funds that look at diversification in international markets and risk reduction through appropriate asset allocation. Overall this portfolio seems to have all bases covered.
While I do think this will be a pretty good portfolio for a 35 year old ( or older ) investor who is getting started, I must say these are not really funds I have invested in now. At an earlier point I had invested in 2 but gave it up as I believe in keeping my debt and equity investments separated at all times and carry out my own asset allocation. I also had 5 some years back but gave it up in favor of some funds which I thought were better in the large cap space. I think 1 is too narrow in it’s focus and prefer an international fund with wider coverage. 3 and 4 have just not been in my radar so far.
However, the above is a pretty decent portfolio and is likely to give annualized returns of 12-15 % for investors over the time horizon of 15 years or so.If you are just starting to build up a portfolio, this can be the one to go for.