Fund Talk - Start with a balanced fund

I am 23 years old. The only investments I’ve been able to do so far are for tax-saving purposes. I am currently investing in an LIC policy with a premium payment of Rs 36,000 annually, and also some money in the PPF.

I am looking for other investment options with good returns in 5-10 years’ time. I can invest Rs 5,000 per month .

Mayank Joshi You have done the right thing by investing in PPF regularly. But you need not have invested in an insurance policy. From the premium paid, it seems to be an endowment product, which is expensive and generates low returns over the long term. Exit the insurance product after the minimum lock-in period. Continue or even step up your investments in PPF for reasonable returns as well as for saving on tax. Instead of the endowment plan, opt for a term cover. Given your age, premiums would be very low.

Coming to the second part of your question, 10 years should be the period for which you must invest to beat inflation and generate meaningful returns. Five years in the market may not be enough if 2008-13 is anything to go by. Since you are new to mutual funds, begin by investing in balanced and large-cap schemes. Invest Rs 2,500 each in ICICI Pru Focused Bluechip and Tata Balanced.

As your surplus increases and when you become more comfortable with mutual fund investments, you can put money into more schemes. Once your equity portfolio is built this way, look to diversify by investing in debt (FDs, RDs, FMPs and NSC), gold and real-estate, so as to build a balanced portfolio.

***I am 25 years old and have been investing Rs 3,500 per month for the last one year in the following funds through the SIP mode: HDFC Prudence — Rs 1,000, HDFC Equity —Rs 1,000. Also, I invest Rs 1,500 in LIC Jeevan Saral policy. I want to accumulate Rs 20 lakh in 10 years. I can invest Rs 2,000 more per month. Please suggest schemes.

Arnab Chakraborty You have invested in two schemes from the same fund house, which will deny you the opportunity of benefiting from the investing styles of different asset management companies. Also, given the relatively small amount that you are investing, a single scheme may have been sufficient.

Exit the insurance policy and opt for a term cover instead. You have stated that you can invest Rs 2,000 more. So split the total of Rs 5,500 as follows: Invest Rs 1,500 in HDFC Equity. Park Rs 2,000 each in Quantum Long Term Equity and ICICI Pru Balanced. Exit HDFC Prudence as ICICI Pru Balanced has delivered better returns over the past few years. HDFC Equity has a proven long-term track record, but do keep a watch over its performance as it has slipped in the last couple of years. Now, if you invest Rs 5,500 every month for 10 years, the annual returns must be 20 per cent for you to reach Rs 20 lakh, which may be extremely challenging. So, you may need to temper your returns expectation.

***My monthly salary is Rs 42,000. I wish to invest in mutual funds. As there are a number of schemes, please let me know which one to invest in for good returns. Also, I’d like to know about tax saving funds.

Saranya

Your question is fairly open-ended. We are constrained by lack of details on age, investable surplus, appetite for risk and investment horizon. But given that you are just starting out on mutual fund investments, opt for safer avenues. You can take exposure to balanced schemes that invest in a combination of debt and equity. If you are willing to take a little more risk, you can opt for large-cap funds that invest in established blue-chip names across sectors. Assuming that you can invest Rs 10,000 every month, you can consider starting a systematic investment plan in the following schemes: park Rs 2,500 each in Birla Sun Life Frontline Equity and Franklin India Bluechip. Invest Rs 2,500 each in Tata Balanced and ICICI Pru Balanced.

The above portfolio involves having a moderate risk appetite and a time horizon of 7-10 years.

Coming to your query on tax-saving funds, you might as well opt for diversified equity schemes for building a long-term corpus. Each instalment made in tax-saving funds is locked for a three-year period, so you cannot exit them if their performance is not up to the mark. For tax-saving purposes invest in PPF or NSC and also try to increase your contribution to provident fund through the VPF mode. Take stock of the performance of the schemes in your portfolio once every year, and make suitable modifications for rebalancing as well as to exit or add funds.

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