Portfolio Re-balancing

POSTED BY Sachin ON January 5, 2011 6:04 pm COMMENTS (7)

I do a SIP of around 15000 in to Equity Mutual funds viz, Relaince Growth, Sundaram Select Mid Cap, HDFC tax saver & Top 200, Birla Sun Life FL Equity. My Portfolio size has reached approximately 2 lacs plus. 

Please suggest if i need to rebalance my portfolio as my equity exposure is almost 100%.

Please also suggest ways to do portfolio rebalancing 

7 replies on this article “Portfolio Re-balancing”

  1. Sachin says:

    Thanks Ramesh for your thoughts/suggestions & making it simple for me.
    Will get back for any more queries

  2. Ramesh says:

    My suggestions in order of preference:
    1. Build a contingency fund (whatever you feel comfortable with. 60k is ok). Make sure it has got prompt liquidity.
    2. Get a term policy of reasonable size (include your liabilities + your earning potential). Do not try rounding off to 1 crore. Calculate it separately, then if it comes to 1 cr its ok,
    3. Regarding your LIC plans. Do not surrender, because of the reasons mentioned elsewhere in the forum (please search, there is a wealth of information already in this forum). Your can either try to continue “investing” in it or make it a paid-up policy. You will need the opinion of an unbiased “insurance” person. One thing is sure, surrendering it after such a long time will not be worth it.
    4. Divide your portfolio ON PAPER into core and satellite. Core for your own retirement and Satellite for your daughter’s education/marriage/etc. You can use same funds in both the portfolio but separating it will help you in management. How to separate – use different folios!
    5. since you already have a house, further “investment” in another house is really a specialist job to watch. Personally, I would not recommend it considering your already leveraged position, current housing prices, and relatively less amount of non-reality portfolio. “Do not concentrate your portfolio in a single asset class” is the principle.

    More thoughts:
    1. Get a good financial planner.
    2. Do not put your money in direct equity. As I understand, you do not have the knowledge or the strategy to make money there. Do not take it otherwise. The simple thing that you did this “bought in rally and sold after they reached the buying price” means that only. You will be much better served if you refrain from direct investing! Participate through the equity funds. So no sectoral or stock recommendations are right for you. Reminder: Investing in stocks by SIP is absolutely bad.
    3. You have not mentioned anything about the ULIP.
    4. 40% of your take-home is savings is a very good amount. Congrats.

    Hope this helps.

  3. Sachin says:

    After reading your suggestions, I’m really pondering where i was heading with my investments. Thanks a lot for your suggestion. Wanted to add the following points further,

    My monthly expenses(including personal expenses/EMI) is around 30K & amount left for savings is approx 20K savings per month.

    My house is on a loan of 7 lacs taken in 2006 for which my EMI is around 7K for 15 years. I had taken this @ 8.25% & now the ROI 12% likely to go up further. The change of interest rate has caused an extension in my loan term from 180 months to 325 months.

    Both the LIC policies accrued bonus put together would be around 1.5 lac. One of the policy is an Money back plan (20 years) maturing on 2020 & the other is a Endowment plan (15 years) with maturity in year 2018. Guess i should surrender these policies & substitute with a term plan.It seems to me the premium of 27K for a 4lac cover to be very expensive

    The 100K equity which i have invested earlier is direct equity. I have now reduced the exposure to 50K. I had bought the stocks during the rally and later sold them in 2010 when the stocks reached my buying price. I intend to do SIP for good stocks over a 10 to 15 year horizon. Please suggest sector/ good stocks where i can start investing.

    Medical insurance support is provided by my company- Floater cover of 3 lac (including parents)

    Contingency fund – not existing currently

    Create Sizeable Contingency Fund – currently @ 60K
    Buying house – 2 BHK (currently valued at 70 lacs)
    Create corpus for Daughter to take care of education, marriage
    Retirement Planning

    I would request you to review & re-suggest options available.

  4. Ramesh says:

    Now the entire outlook is changed. 🙂

    Views about the current portfolio:
    1. Too many equity funds, though all of them are good funds (which is a headache).
    2. Life insurance is woefully inadequate.
    3. A large amount of cash, which is “not working”.
    4. Two insurance policies (the cash value of which is not available and will not be considered in the present analysis).
    5. Also the equity of around 100k. It is not clear whether this is the value of ‘direct equity’ or ‘stocks+MF’ or ‘only MF with no direct equity stocks’ or ‘MF + ULIP’ (since earlier, you have mentioned that the total portfolio is 2 lakhs.)

    I would outline the principles that you need to follow:
    1. Get life insurance of adequate amount depending upon your income profile.
    2. You have your own house which is a very good asset. I hope you do not have any mortgage loan associated with it. If yes, then you need to utilise that plus your current policies and look at the amount you are putting in HDFC taxsaver.
    3. Get medical insurance too. Adequately if no other insurance support from the company.
    4. Keep a contingency fund. I would say 70k-100k separately in savings account + liquid MF + FD. And do not include that as your portfolio. 🙂
    5. Overall, currently your portfolio equity:debt ratio is about 100:170+100 (I have removed 100k from your cash for the contingency fund) = 30:70.

    For long term portfolio growth, you should increase the allocation to equity portfolio. The simplest way to do it is to now buy equity only and get your allocation to atleast 60 level. Use the 100k cash to buy a large cap equity fund. Either buy lumpsum or do a STP. This will bring your E:D to 55:45. And then continue investing in equity to bring your portfolio to 60-70% in equity.

    Decrease the number of funds (for management sake).
    Opt for either DSP top 100 or HDFC Top 200 (same type of funds).
    Opt for either reliance growth or sundaram midcap select (same type of funds).
    Opt for either bsl fl or magnum contra (again, same type of funds).

    All funds are good, and there is no clear-cut winner out of the 6 funds. 🙂
    Keep HDFC taxsaver as the ELSS.

    this is a rough roadmap for you and requires more information as i have detailed.

    Portfolio review. do at half-yearly intervals.
    Invest well and be happy.


  5. Sachin says:

    Hi Ramesh,
    I’m 37 yrs of age & married with a 3 year old daughter & living in my owned house. Please suggest portfolio rebalancing if required considering various milestones which i have to achieve going forward. Also suggest the frequency where i need to review/rebalance my portfolio.
    Following is the portfolio composition
    1>MF (Monthly SIP)
    DSP BlackRock Top 100 Equity – 1000
    HDFC Tax Saver – 3000
    Reliance Growth – 2000
    SBI Magnum Sector Umbrella -3000
    Birla FL Equity – 1000
    HDFC Top 200 Fund – 1000
    Sundaram Select Mid Cap – 2000
    All of the above are under growth option
    2>PPF – 170K
    3>Endowment Policies – annual premium 27483 SA 400K, maturity 2020
    4>ULIP – 21924, SA 7500K (upto age 70)
    5>Cash at hand – 200K
    6>Equity – around 100K

  6. Ramesh says:

    Do you require portfolio rebalancing ? Depends upon the overall portfolio (your equity MF + cash + PPF + FD + endowment policies, etc). Unless that information is provided, a proper advise is not possible. 🙂

  7. Sachin

    Seems like you are doing SIP from last 10 months or so .. Looking at current market levels , I feel you should rebalance it to 60:40 atleast . You can sell of 80,000 worth of mutual funds and move to Debt funds . However make sure you look at taxation also

    It would be wise to complete 1 yrs and then sell off your equity , else you will have to pay 15% on the profits ,also note that each SIP should complete 1 yr to claim “no-tax” benefit as per current rules .


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