Mutual Funds

Do not mix insurance with investment

K. VENKATASUBRAMANIAN | Updated on January 18, 2014

Stay off costly traditional plans and Unit linked plans. They are not attractive.

I am 30 years old and want to invest Rs 5,000 every month for my three-year-old daughter. The investment horizon would be 20-25 years. Please let me know in which mutual funds I should invest to get optimum returns.

Prakhar



You have indicated that you would like to derive optimum returns. There is definitely scope to derive higher returns through mutual funds over the long term compared with debt products.

Since you are starting so early to save, you can take reasonable risks. Invest Rs 3,000 in Birla Sun Life Frontline Equity and Rs 2,000 in ICICI Pru Discovery. This way, you will have a large-cap as well as mid-cap exposure.

As your surplus increases, you can also consider investing in gold ETFs such as Goldman Sachs Gold BeES or a mutual fund gold scheme such as Reliance Gold Saving.

It would be better to have a target corpus in mind. If you reach the desired level of accumulation ahead of time, move over the proceeds to safe debt options.

***

I am 28 and my monthly income is Rs 40,000. I am interested in investing around Rs 5,000 through the SIP route. Which schemes should I invest in and for what duration for the best returns? Is this the right time to invest in insurance schemes?

Rishi



You have chosen a path of financial discipline by opting to invest a specified amount every month.

The schemes you can explore would depend on your investment time horizon, risk-appetite and the nature of goals – negotiable or non-negotiable.

For a less than three-year timeframe, you would do well to stick to balanced funds. You can consider equity funds if your investment horizon is at least five years. For short-term requirements of, say, one-two years, stick to fixed deposits, RDs or select debt funds.

Generally, for those just starting on mutual fund investments, it is advisable to begin with large-cap and balanced funds. But here again, if your appetite for risk is high, given that you are young you can choose to invest in mid-cap and multi-cap funds as well.

You can make a start by investing Rs 2,500 each in Quantum Long Term Equity and ICICI Pru Focused Bluechip Equity. Alternately, if you can take more risks, you can invest Rs 2,500 in ICICI Pru Focused Bluechip, Rs 1,500 in Quantum Long Term Equity and Rs 1,000 in IDFC Premier Equity.

The other important point to note is that ‘best’ returns may not manifest over the short term. The chances of deriving meaningful inflation-beating returns are quite high if you invest in equity funds with a 7-10 year timeline.

Coming to the next part of your question as to whether it is the right time to ‘invest’ in insurance, please note that insurance and investment are not to be mixed up.

Insurance is meant to cover you for risks alone. So at your age, the only insurance policies you must buy are term and medical covers.

Given that you are young, you can take health and term cover policies for a high sum assured at a very low cost.

Stay off costly traditional plans that offer low returns and very little cover. Unit linked plans too do not appear very attractive as of now.

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I am 23 years old and work for a public sector company. I want to start investing in mutual funds and can invest Rs 10,000 a month. My goal is to beat inflation and get better returns compared with PPF. I also want to diversify my investment, which is currently slanted towards debt.

Mayank Joshi



Given that you are quite young and want to start off on investments, you must be able to take a fair level of risk to derive higher returns.

Now, PPF is an excellent debt product. While you have indicated that you wish to beat returns from PPF, this must also figure in your portfolio as it is a 15-year scheme and is completely tax free. It would also help you build a balanced portfolio with debt and equity.

Split Rs 10,000 across the following schemes: invest Rs 3,000 each in Birla Sun Life Frontline Equity and ICICI Pru Dynamic. Park Rs 2,000 each in IDFC Premier Equity and HDFC Mid-cap Opportunities.

You would thus have a blend of large- and mid-cap funds. All these funds have a proven track record and have delivered above-average returns over the long term, comfortably beating standard equity benchmarks and PPF returns.

At your age, you must look to have a portfolio with 70:20:10 allocation to equity (through mutual funds), debt and gold, respectively.

As your surplus increases, consider investing in gold ETFs as an inflation hedge and later on real-estate as well, so that you are able to create a balanced portfolio.

Review the performance of the funds in your portfolio once every year and take corrective action, if necessary.



Queries may be e-mailed to >mf@thehindu.co.in

Published on January 18, 2014

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