Fund Talk: Balanced funds suit low-risk investors

I am 24 years old and presently employed in a public sector bank. I have been investing Rs 12,000 every month in RDs from which I get 10 per cent return. I have no liability.

I would like to diversify my portfolio by investing in mutual funds through the SIP (systematic investment plan) mode. I prefer a long-term investment, usually ranging six-eight years. Please suggest good schemes and other options to diversify my investment.

I am averse to taking risks and prefer long-term investments coupled with guaranteed returns.

Prajata Ganguli

It is good that you have made a start in investing for the long term early on in your career.

But given that you have no liability, it is surprising that you cannot take risks and prefer guaranteed returns.

No market-linked product can give you guaranteed returns. So only debt products such as RDs, FDs, PPF, NSC, etc., can give assured returns in investment.

You have stated that you get 10 per cent returns from your RD investment. But the interest is taxable at your slab, so the net returns would be much lower.

While there may be risks to investing in diversified mutual funds, over the long term of 7-10 years, it is likely to provide inflation-beating returns.

If you can take a little bit of risk, invest in funds such as HDFC Balanced and Tata Balanced. While these balanced schemes cannot provide guaranteed returns, the debt component on their portfolios ensures that risks are well tempered.

To diversify your portfolio, you can also invest in diversified mutual funds, debt, gold and later on real-estate.

With your recurring deposit, you have made a start with debt. Now invest in balanced schemes mentioned above and later on large-cap funds as you gain more understanding as well as comfort in such products. Then invest in gold saving funds such as Reliance Gold Saving, but it must not account for more than 10 per cent of your portfolio.

Later on, as your surplus increases, try investing in a house, if you don’t already own one.

Ideally, at this stage you must invest more than 60 per cent of your surplus in diversified mutual funds and lower it progressively as you age and put more money in debt.

*** I have been investing in HDFC Top 200 from 2009. Is it worth holding the fund or should I redeem the units?

Prasad

You have raised a pertinent question by asking about HDFC Top 200. It is a large-cap fund that has been underperforming its peers over the past couple of years.

Although it has an excellent long-term track record, its prolonged underperformance is a point of concern.

You can stop further investments in the scheme and sell the units in market rallies. Alternately, you can switch to Birla Sun Life Frontline Equity, which has a similar mandate but has delivered well across market cycles.

I am 24 and have been working for the past couple of years. Now, I am confused as to which tax saving instrument is suited for me. From the various debt options and tax saving mutual funds on offer, where should I park my money?

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