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How many mutual funds should you have in your Portfolio - For

different kind of investors ?


According to the risk profile of an investor one can categorize an investor into 3 types:
Conservative:
An investor with a conservative approach to investing is generally seeking to preserve capital
and is usually prepared to accept lower investment returns. The main emphasis is on defensive
assets because he cannot tolerate any erosion in capital. A conservative portfolio
Is typically suited to an investor who prefers reliable consistent returns or who has a short-term
investment horizon. People who are in the retirement phase would generally be looking to
invest in income mutual funds which invest primarily in the debt market. There should be a
limited exposure to equity mutual funds since equity mutual funds returns are subject to stock
market risks and volatality. A typical investment portfolio for a conservative investor will
contain 75 % in income funds, 10% in liquid funds, 5 % in gold mutual funds and in 10% in
equity mutual funds. It is not necessary that only senior citizens prefer such an asset allocation.
Youngsters who dont wish to take risk also prefer such an asset allocation.
The idea behind this asset allocation is to generate an average return in the range of 9 % to 11%
p.a over an investment horizon of 1 to 3 years.
Moderate:
An investor with a moderate approach to investing is usually seeking a diversified investment
portfolio with exposure to a broad range of investment sectors. Investments will include a
diversified mix of balanced, equity, debt, gold and MIP funds.
Investors need to accept some short-term fluctuations in their capital value in return for higher
returns which are anticipated to be higher than a conservative investor. A moderate portfolio is
typically suited to an investor who either seeks to diversify risk with reasonable returns or who
has a medium-term investment horizon (minimum of 3 to 5 years). A typical investment
portfolio for a moderate investor will contain 20% in income funds, 5 % in liquid funds 10% in
gold mutual funds and 65% in equity mutual funds.
The idea behind this asset allocation is to generate an average return in the range of 11 % to
13% p.a. over an investment horizon of 3 to 5 years.
Aggressive:
An investor with an aggressive approach to investing is comfortable accepting high volatility in
their capital value, with the risk of short to medium-term periods of negative returns. They are
generally willing to trade higher risk for greater long-term returns and typically will
have a longer investment horizon. The investment portfolio will consist of a larger proportion of
shares and with little fixed interest or defensive assets exposure. It is typically suited to an
investor seeking long-term capital appreciation and who is comfortable with

short-term fluctuations in his capital value. A typical investment portfolio will contain 5 % in
income funds, 5 % in liquid funds, 15 % in gold mutual funds and 75% in equity mutual funds.
The idea behind this asset allocation is to generate an average return in the range of 15 % to
20% over an investment horizon of 5 to 10 years.
For generating this type of return higher risk and ability to digest losses is required and in
reality very few investors have the courage to sail through losses.
On an average an investor should be contented with 10 mutual fund schemes in his portfolio.
These 10 schemes can be selected from the various earlier discussed categories of Income,
Liquid, Gold, and Equity.
In equity the client can choose a combination of large cap and midcap funds.
Increasing the number of schemes does not solve any purpose beyond this limit and it becomes
difficult to manage the mutual fund portfolio.
I have seen several clients having portfolios containing 30 to 50 schemes.
Managing and keeping a watch over the schemes becomes difficult for the client as well as the
Investment Advisor. As long as a client is invested in the consistent best performing schemes
across different categories the objective is served.
An investor may not get the best returns in the mutual fund schemes wherein he is invested,
since the schemes rank shall keep on fluctuating across different time frames calculated on a
weekly, monthly, quarterly, six monthly, half yearly, yearly basis etc.
Whats important is that the chosen scheme continues to be an above average performer in the
particular mutual fund category.
Hence a client should not be running behind the top performing schemes in each category since
the rank is momentary. Whats important is the consistency of above average performance by
the scheme.
Recommended mutual fund schemes for Investors:
1. Taurus Dynamic Income Fund (Income)
2. DWS Premier Bond Fund (Income)
3. ICICI Prudential Regular Savings Fund (Income)
4. Taurus Ultra Short Term Bond Fund (Liquid Plus)
5. SBI Magnum Insta Cash Fund Liquid Floater Plan (Liquid)
5. Reliance Gold Savings Fund (Gold)
6. Kotak Gold Fund (Gold)
7. HDFC Top 200 Fund (Equity: Largecap)
8. Franklin India Bluechip Fund (Equity: Large cap)
9. ICICI prudential Dynamic Plan (Equity: Large and midcap)
10. BNP Paribas Midcap Fund (Equity: Mid and small cap)

Review of your mutual fund portfolio: A monthly or a quarterly portfolio review meeting with
your Investment Advisor is essential to ensure that the chosen schemes in your mutual fund
portfolio are delivering good returns in the chosen category.
I recommend aggressive category investors to review their mutual fund portfolio every month
whereas conservative category investors would be fine with a quarterly portfolio review.
A review ensures that you stay invested in the best performing schemes at all given times
throughout the year.

Article is written by Sandeep Sahasrabudhe


Chief Financial Planner
Moneywise Financial Planners