Defeating the purpose of diversification

Publication details: Money Manager – CNBC Bajar – 10-03-2016

Responses, opinion and view from Kartik Jhaveri.

Question sent by Hemang Joshi:-

Below are my monthly investments:

1. DSPBR Equity Fund – Rs. 1,000.
2. HDFC Prudence Fund – Rs. 1,500.
3. ICICI Prudential Balanced Advantage Fund – Rs. 1,000.
4. ICICI Pru Value Discovery  Fund – Rs. 1,000.
5. Franklin India Bluechip Fund – Rs. 1,000.
6. Sundaram Select Midcap Plan – Rs. 1,000

I have invested a lumpsum amount of Rs. 30,000 in Sundaram Select Micro Cap.

Are these investments proper or do I need to make any changes?

Also I want to invest Rs. 40,000. Kindly suggest as to where I can invest this amount?

Advice given:

1. It is nice to see that you have a good portfolio of wealth creating asset- equity mutual fund.
2. Do not over diversify. DSPBR Equity, HDFC Prudence & Franklin Bluechip do the same thing i.e. large cap investments. Likewise for Sundaram Midcap & ICICI Pru Value Discovery invest only in midcaps. Choose one in each category.
3. Avoid Balanced Funds if your objective is wealth creation.
4. Completely move away from Balanced Funds – that’s an equity fund but will not give you 100% equity oriented returns.
5. You can deploy the above investment of Rs 40,000 in existing equity mutual fund in the following manner:
   • 50% into large caps and 50% in the other midcap.
   • The timing is fine at the moment.