Reassess the risks in your portfolio

I have been holding few mutual funds for a long period. Please advise whether I should continue with them or to switch to better funds. I am 68 years old and retired but willing to take moderate risks over 1-2 years. I expect good dividends and do not wish to trade. All my funds are under the dividend payout option. The funds are: Birla Sun Life Equity, DSPBR Equity, DSPBR Opportunities, DWS Alpha Equity, HSBC Equity, ICICI Pru Infrastructure, Reliance Infrastructure, UTI Infrastructure, UTI Leadership Equity, UTI Energy, Sundaram BNP Paribas Select Small Cap and Sundaram BNP Paribas Select Focus.

S.Y. Kekre

The overall risk profile of your portfolio can be termed above-average. While you have said that you can stomach some risks, your time-frame for the same appears too short. If you were confronted with a correction like the one in 2008, then your returns of up to even three years can be completely eroded. Unless you have sufficient other income/wealth streams, it may not be very prudent to take much risk given your age and your retired status.

The dividend track record of domestic equity funds so far suggests that some of the top funds with above-average risk are not often regular dividend payout candidates. Besides, you may be aware that mutual funds are under no obligation to pay regular fixed sums as dividends even if you choose the payout option.

Do not therefore depend on mutual fund dividends for regular source of income. They can at best be a supplement. But we will try and re-jig portfolio so that you hold funds with relatively less risk, good performance track record and those with a regular dividend payout history.

Continue to hold Birla Sun Life Equity and DSPBR Equity. These funds have been fairly regular in their dividend payments. Add Templeton India Growth and HDFC Equity. They have been consistent in their performance and would suit your moderate risk appetite. They have also been active in paying out dividends when the markets have rallied too fast or when the fund house feels that markets are over-heated and run ahead of fundamentals.

Add debt funds

Hold on to HSBC Equity and review performance a year later. Marked under performance of this fund over peers need not be tolerated. The three infrastructure funds that you hold can only increase your portfolio risk, besides duplicating stocks. If you must hold, continue with ICICI Pru infrastructure but ensure that it accounts for only 5-10 per cent of your total fund holdings. Exit from the other two infrastructure funds.

If you are sitting on some profits, considering selling the other funds that we have not mentioned above, reason being that they may either not fit your risk profile or have been under performers. Sundaram Select Small Cap is a close-end fund. It has performed well; you can consider holding it and take a call once it becomes open-ended. Consider adding a few monthly income plans and debt funds to your portfolio. These, apart from providing some hedge for your equity fund, would also pay relatively regular dividend. Monthly income plans also take an average 15 per cent exposure to equities to prop returns.

HDFC MIP Long Term, Canara Robeco Income and Fortis Flexi Debt would be funds that are likely to provide some regular dividend for you. Opt for the monthly or quarterly payout schemes.