What's an Ideal Portfolio?

I am more of an SIP investor though I have invested in the recent new fund offers. My investments are in equity funds such as Franklin India Bluechip, Franklin India Flexicap, HDFC Equity, HDFC Capital Builder, HSBC Equity, Fidelity Equity, Magnum Global and ABN AMRO Equity. I have been investing for about a year now. I would like to optimise my investments into a few of the mentioned funds.

Does it make sense to exit some of these funds and concentrate on a few? I would also like you to advise on an ideal portfolio.
-Sid

It is good to see that you are doing the right things by choosing the systematic investment plan to invest in the markets and trying to optimise the number of funds in your portfolio, rather than raising an army of funds. You have chosen good funds though you could have avoided some of the new ones.

Your current portfolio looks good in terms of diversification. Assuming equal allocation to all the funds you have mentioned, about 55 per cent of your investment is in large-caps, 35 per cent is in mid-caps and the remaining in small caps. The portfolio also looks quite diversified across stocks and sectors.

It would not make sense to exit some of the funds right now, since those investments would be less than one year old, and exiting them now can attract capital gains tax and exit loads. Concentrate on a few funds for your future investments and keep investing in them through the SIP mode.

There is no such thing as an ideal portfolio. It differs from individual to individual. A portfolio that is well-suited to you might not be appropriate for someone else. Factors like tenure of investment and risk appetite guide the portfolio composition.

If you are investing for the long term, say five years or more, and can digest the volatility, then equities are the most suited asset class for you. For shorter time horizons, one should look at hybrid funds in which the debt component can provide you with stability while the equity portion can pack a punch.

For very short term investments, of say six months, there are products like floating rate funds and short term debt funds which are the most appropriate, since equities can turn out to be too risky over such a short duration.

Therefore, take a hard look at these factors and decide how much you would like to invest in different asset classes. Once you have decided between the equity-debt mix of your portfolio, then select the funds to achieve it.

While selecting the funds, keep in mind the allocation to large- and mid-caps, and diversification across stocks and sectors. Avoid the funds that have quite similar looking portfolios as it will only lead to duplication. Once you have zeroed down upon the funds that fit into your portfolio, invest in them regularly through the SIP mode.

Since you already have investments in equities, first decide whether you are comfortable with an all-equity portfolio. If not, then consider a good balanced fund like HDFC Prudence to introduce the debt component.