Mutual Funds

Invest in equity funds only for the long term

K. VENKATASUBRAMANIAN | Updated on September 21, 2013

I am a 52-year-old government employee and I wish to invest around Rs 4 lakh in a safe avenue. I also plan to invest Rs 10,000 per month in mutual funds through the SIP (systematic investment plan) route.

Could you please guide me to safe and guaranteed ventures so that I can spend my retired life with financial security?

K. Saraswathi

The only ‘safe’ avenue available for investors is the bank fixed deposit or other government-promoted schemes such as the NSC or the PPF. Any other investment that is even remotely market-linked is subject to volatility and fluctuation in returns. So, park the amount in a fixed deposit or the NSC.

Again, with respect to your SIP investments, there is no fund that can give you assured or guaranteed returns.

You can consider investing regularly in the NSC or PPF so that you accumulate a reasonable corpus for your retirement.

But if you can take a little bit more risk, you can consider balanced funds. Schemes such as Tata Balanced, ICICI Pru Balanced and Birla Sun Life 95 have good long-term track records. Split the amount equally among these three funds.

Monitor their performance regularly and book profits in case of substantial rallies.

Once you accumulate a corpus with these funds, then closer to retirement, exit these funds. The amount accumulated can be parked in a fixed deposit that gives you a monthly interest payout.

The interest amount can be invested in a monthly income plan. Some plans with a proven track record are HDFC MIP Long Term, Reliance MIP and Birla Sun Life MIP.

*** I have been investing Rs 2,000 each in two mutual fund schemes through the SIP mode. These investments are Quantum Long Term Equity and IDFC Premier Equity. I have accumulated almost Rs 50000 each in both the schemes so far. I have just started a SIP of Rs 1,000 in FT Feeder – US fund.

Now for diversification purposes, I want to stop the SIP in Quantum Long Term Equity and start new investments for the same amount in ICICI Pru Focused Blue Chip.

Please let me whether I am on the right track. Also, suggest whether I should discontinue the SIP in IDFC Premier Equity. My time horizon is a minimum of three years.

Brij Lal Dhiman

You have chosen two quality funds in Quantum Long Term Equity and IDFC Premier Equity. One is a multi-cap fund with a strong large-cap bias, while the other is a proven mid-cap scheme.

These two schemes are enough to provide you with adequate diversification domestically. Unless there is a drastic dip in performance, you need not stop investing in any fund. For international diversification, you can continue with your investments in the US focused fund.

Now, you have stated that your time horizon is a ‘minimum’ of three years. Your investment period needs to be a lot longer. This is too short a timeframe to invest in equity funds. For such a short tenure FDs, FMPs or dynamic bond funds may better serve your purpose.

To gain inflation-beating returns from mutual funds, you need to have a time horizon of seven-ten years.

You have not stated for what goal you are saving, so it may not be possible to comment if your portfolio is on the ‘right’ track. But keep the above-mentioned guidelines in mind to save for goals.

*** I am 22 years old and want to invest Rs 8,000 every month through the SIP route. My time horizon is seven years over which I wish to accumulate Rs 30 lakh .

Please suggest schemes through which I can realise my goal.

If Rs 8,000 a month is not enough to achieve this goal , I can invest Rs 2,000 more .


It is nice to note that you have started saving early on into your career. What is more, you also have a defined timeframe and a target corpus in mind, which will help channelise your savings in the right direction.

But the amount you want to accumulate appears quite unrealistic in light of your monthly intended investment levels. We are assuming that you can invest Rs 10,000, which still may not be enough to reach your goal.

For accumulating Rs 30 lakh in seven years by investing Rs 10,000 every month, the annual returns will have to be a whopping 32 per cent! No equity scheme can achieve such high returns, that too over such a timeframe.

So, you need to temper your return expectations substantially.

If you can invest Rs 10,000 every month for a period of seven years and with an aggressive portfolio and manage to get 15 per cent annually, you will be able to accumulate Rs 15 lakh. But generating 15 per cent annually over seven years may not be easy.

Split Rs 10,000 as follows: Invest Rs 2,500 each in IDFC Premier Equity, ICICI Pru Discovery, UTI Opportunities and Canara Robeco Equity Diversified. This portfolio comprises mid-cap and multi-cap funds with strong performance records.

Step up your investments when your surplus increases.

Monitor the schemes in your portfolio periodically and take corrective action. Also, take care to rebalance when necessary.

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Published on September 21, 2013

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