Number of Funds in Portfolio

[life2007]

Hello!

I have been given to understand that a MF portfolio should not exceed 5-6 funds. Large number of funds in the portfolio is not advisable.

While this is true, I have a question. Suppose, I started investing 'X' amount in "A" fund by SIP committed for a year. The fund is great and is among the top 10 rated funds. However, Half way.. i.e 6 months, I find other funds of the same category are giving much better returns while the fund (A) I choosed, went downslide due to various reasons.

While nothing can be done, for the first 6 months I invested, does it not make a sensible decision to switch to another fund say "B" ? If yes, then we find we have 2 funds now of same category A & B. If this were to be repeated in many other funds I had choosen earlier, then then the portfolio will swell. If no, please tell me how it would be sensible to keep on investing in a fund despite knowing it is going down?

To give a real example, I choose two funds for ELSS when I started investing in Jan 2008. SBI Max Tax Gain and Birla Sunlife Tax Relief 96. However, couple of months back, I found it would be better to further invest in Sundaram Tax Saver. Hence I voluntarily did not invest in Birla 96 and shifted the allocation between Tax gain and Sundaram tax Saver. But overall, now my portfolio consists of 3 ELSS which should not be there. One is enough, Two is still OK, but Three is unnecessary.

Please help to clear this confusion.

Thanks

Jeet

 

[mayurkotlikar]

I had similar questiones but my advisor had a few points that convinced me.

There are couple of points to decide whether to exit:
1. Your investment is driven by a goal, if that goal is achieved, exit.
2. Comparison of a MF with peers is always not helpful. I will stick to a fund with good track record of 3-4 years for same duration in future.
3. Theme \ investment objective might not be relevant.

The top list on various MF research website keeps changing.
For investors like us, we should only keep in mind about our investment objectives and stick to it. If the selected MF's investment objective and your objective match, stay invested.
If your fund starts to perform badly (neutral state, not with peers) due to change in Fund manager, company or management or similar such reasons, then you might consult with some expert and exit if he advices to.

Sachin Tendulkar cant be # 1 in all the batsmen list all the time
Over the years, it will be time to say goodbye to him as well,(in MF context the theme and investment methodology might get outdated)

 

[life2007]

Great Explantions Mayur... Thanks

You explained my confusions beautifully!

Ok, I am investing for capital growth as of now. If some major expenses comes up in way after several years from now, I will definitely not overlook my investment in MF because I dont have variety of options. But under normal circumstances, I would like to improve my financial status by investing regularly in MFs.. So that is my goal as of now with no assurance of taking a U-turn as when life puts me in akward situations

I truly understand Sachin cannot be no 1 all the time in the list. However it also depends on the perception of different people. If some people are crazy about him, they will still retain him as no 1 batsman ever produced in cricketing world. Some will be smart to switch loyalties and will be after Dhoni in the current scenario

But in our situation, when do we excatly know that it is time to change loyalties? I mean the first signs do come from the list, various research sites provides rite? We dont to feel ourselves as stupid by keeping on investing on a fund which is nose diving despite enviable track record in the past. So my question was mainly directed towards this. If we do change, wont our portfolio swell ?? I mean the existing investment in the previous fund we selected is not RIPE for redemption, yet we are forced to take new ones? I hope you got my point. May be i need to express more clearly... but I am not good at it

One more thing Mayur, I have heard umpteen times about your comment "Your investment is driven by a goal, if that goal is achieved, exit". It is easy said than done. I rarely see people having the luck of nearing their goal and the market behaving excatly they want at that point of time. Ok, let me give an example. If a person invested in 1998-1999 for his children's marriage around this year, he will definitely suffer an attack if had he not withdraw before Jan 2008. In fact, he will have to go for a huge loan now, because he cannot tell his children to wait for few years (how many years, he himself does not know).

I understand the rich and the famous can wait endlessly to acheive their goals of addding few more thousands in the wallet in stock market, but what about most middle class families?. Please put in your comments to my opinon, one needs to regularly book profits periodically regardless of their goals and still have decent money in the market for further growth. If there is no immediate requirement of the profits being booked, there are other safe avenues of investments like FDs, Real Estate, Gold etc which are comparitively less risky than the the stock markets. Atleast you know you booked some profits before a big disaster like the one we are witnessing now and dont have to start all over again from scratch.

I am only trying to put up a debate here and hope others will join. Please do not think I am countering your advise.

Thanks a ton

Regards

Jeet

I had similar questiones but my advisor had a few points that convinced me.

There are couple of points to decide whether to exit:
1. Your investment is driven by a goal, if that goal is achieved, exit.
2. Comparison of a MF with peers is always not helpful. I will stick to a fund with good track record of 3-4 years for same duration in future.
3. Theme \ investment objective might not be relevant.

The top list on various MF research website keeps changing.
For investors like us, we should only keep in mind about our investment objectives and stick to it. If the selected MF's investment objective and your objective match, stay invested.
If your fund starts to perform badly (neutral state, not with peers) due to change in Fund manager, company or management or similar such reasons, then you might consult with some expert and exit if he advices to.

Sachin Tendulkar cant be # 1 in all the batsmen list all the time
Over the years, it will be time to say goodbye to him as well,(in MF context the theme and investment methodology might get outdated)

 

[mayurkotlikar]

You have started a good discussion and I am happy to be a part of it

Just a quick one regarding the scenario you mentioned. The 'risk' part in life needs to be taken care by 'insurance'. Hopefully, some debt allocation might have helped. If the goal is for 1-3 year, Balanced fund\Debt funds\Arbitrage funds are better choices that pure equity. I have invested in 1999 and still getting good returns. Problem is with investments done around Sept-2006 onwards for me


BTW, I am also greedy and want to get something when the market climbs.
But again, timing is the key.
So, I gave it a thought and came up with a plan that might suit me for some time:
1. I have to invest for a long term (I will keep investing and mostly via SIP). No major change\stop gap here till some significant changes occur. No thematic\sectoral fund, mostly diversified across market caps.
2. I may have some excess amount (not significant, monthly leftovers may be), that I don't want to spend now but dont want to invest that to interfere because these are 'goal' less investments !


For # 2, I had a few options:
1. Bank FD/Debt fund.
2. Derivatives or Arbitrage funds.

But recently I decide to push some amount into very aggressive funds that have performed well in the past.But this time, I opted for Dividend - payout option ! The money that goes in have no particular goal set, just let it go somewhere and I don't worry losing it (given that its going in small amounts, 500 Rs\month say).

Idea is, the MFs will disburse dividends when the market, or their value goes up, this way, my investment now will give me more tax free money later.
Some of the funds, have NAV below 10, take NAV as 5 of a aggressive fund like JM Emerging Leaders, if I buy the Div-payout, I will get 2 units instead of 1.
So may be, after 3-5 years, when they declare Dividends, I stand to receive more.This is not a perfect method, but a method to withdraw in parts when the prices are higher all left to AMC.

This strategy will be when I want to get from market from time time when the market is with a bull run.

Hopefully gurus here will helps us more with their advices.

 

[life2007]

Ok, I have read your comments carefully and would like to put my views on it. But I will wait for some time till other gurus pour in their advices..

I am glad you find it interesting and hopefully others will find the same too...

Thanks

Jeet

You have started a good discussion and I am happy to be a part of it

Just a quick one regarding the scenario you mentioned. The 'risk' part in life needs to be taken care by 'insurance'. Hopefully, some debt allocation might have helped. If the goal is for 1-3 year, Balanced fund\Debt funds\Arbitrage funds are better choices that pure equity. I have invested in 1999 and still getting good returns. Problem is with investments done around Sept-2006 onwards for me


BTW, I am also greedy and want to get something when the market climbs.
But again, timing is the key.
So, I gave it a thought and came up with a plan that might suit me for some time:
1. I have to invest for a long term (I will keep investing and mostly via SIP). No major change\stop gap here till some significant changes occur. No thematic\sectoral fund, mostly diversified across market caps.
2. I may have some excess amount (not significant, monthly leftovers may be), that I don't want to spend now but dont want to invest that to interfere because these are 'goal' less investments !


For # 2, I had a few options:
1. Bank FD/Debt fund.
2. Derivatives or Arbitrage funds.

But recently I decide to push some amount into very aggressive funds that have performed well in the past.But this time, I opted for Dividend - payout option ! The money that goes in have no particular goal set, just let it go somewhere and I don't worry losing it (given that its going in small amounts, 500 Rs\month say).

Idea is, the MFs will disburse dividends when the market, or their value goes up, this way, my investment now will give me more tax free money later.
Some of the funds, have NAV below 10, take NAV as 5 of a aggressive fund like JM Emerging Leaders, if I buy the Div-payout, I will get 2 units instead of 1.
So may be, after 3-5 years, when they declare Dividends, I stand to receive more.This is not a perfect method, but a method to withdraw in parts when the prices are higher all left to AMC.

This strategy will be when I want to get from market from time time when the market is with a bull run.

Hopefully gurus here will helps us more with their advices.

 

[mrindia]

Hi!
ELSS have mandatory 3yr lock-in. Even if the performance is bad, we have no choice but to retain these in our folio. Only thing we can do is to stop further investments in bad ELSS. While re-balancing ur portfolio u may see 2-3 ELSS in ur kitty. This is totally unavoidable.
Regarding rest of MF investments:
If a fund has lost track & is giving unsatisfactory returns compared to category/peers, definitely it has to be replaced. But other factors like exit-load n tax liabilities have to be kept in mind.
In my opinion, if the fund is 4* or 5* rating we keep on investing. If it slip to 3*, keep a watch. See the obvious causes if present, if a change in fund manager has occurred?
If the star rating does not improve & other factors allow you to exit comfortably, try to get rid of this one.
Of course, the portfolio will have some unwanted laggards in the intermittent time frame. This is unavoidable while churning ur portfolio.