Mutual Funds

Your fund portfolio

K Venkatasubramanian | Updated on May 11, 2014

I want to invest a lumpsum of ₹50,000 in mutual funds and then accumulate equity shares by investing ₹2,000-3,000 a month. My time horizon is three years.

Also, if I have to invest in diversified equity plans for 10-15 years, where can I park ₹2,000-3,000 every month?

- Rakesh Menghani

It is generally not a good idea to invest in the market at one go. Parking a lumpsum would expose your entire investment to market vagaries. A better idea would be to start monthly SIPs or at least stagger your lumpsum over three-four months.

Mutual fund managers continuously try to identify stocks that they believe would rally over the long term. So it is better to take the fund route to investing rather than trying to identify ‘winning’ stocks on your own as the task would be quite challenging.

Also, three years may not be sufficient to get into equity or related instruments as they are more likely to play out well over a 5-10 year time period. Assuming that you can invest ₹3,000 each month, here are two schemes that you can choose. Park equal amounts in ICICI Pru Focused Bluechip and HDFC Mid-cap Opportunities. A mid-cap fund has been suggested as your risk appetite seems reasonably high given your interest in investing in equities directly.

I am 36 and work in the Defence sector. I have two children, a daughter who is eight and son who is four. I have never invested in the markets. I have put all my money either in PF or in FDs. I now wish to invest ₹3,000-5,000 a month to generate a corpus of ₹10-15 lakh at the end of 10 years, towards my daughter's higher education. Should I invest in mutual funds or continue investing only in FDs?

- Mohit

You have no doubt been a conservative investor, especially given your age. While debt instruments can give you stable returns, it would be difficult to beat inflation with investments in these avenues alone. You must look at quality fixed maturity plans (FMPs) that offer good returns and offer indexation benefit that makes them tax efficient. In the long-term of seven to 10 years, quality mutual funds tend to beat inflation convincingly and deliver meaningful capital appreciation. So, you must invest at least a portion of your surplus in equity through mutual funds.

Coming to accumulating a corpus for your child’s education, you can generate around ₹11 lakh in 10 years if you invest ₹5,000 every month and the annual returns are 12 per cent. A debt investment that gives, say, 9 per cent annual returns would not suffice to reach your goal, more so while considering the post-tax returns.

Invest ₹3,000 in Quantum Long Term Equity and ₹2,000 in HDFC Balanced.

In the long term, a balanced portfolio is created only when you invest in equity (mutual funds), debt (FDs, RDs, tax-free bonds, PPF, etc), gold and if possible real estate. The proportion allocated to various asset classes would depend on your risk appetite, age, time horizon and available surplus. For your age, you must invest at least 55-60 per cent of your surplus in equity.

I am a salaried person. I am new to mutual fund investments. I want safe and good returns.

- RS Rawat

Since you are new to investing in mutual funds, you can start by looking at balanced or large-cap schemes. Mutual funds are market-linked products and hence returns can gyrate. So, there is no certainty that it would be ‘safe’.

You can classify mutual fund investments based on the risk profile of the underlying schemes and how they invest. The choice of scheme would also depend on how much volatility you can stomach.

Again, ‘good’ return is taken to mean ‘inflation-beating’ returns over the long term of seven to 10 years. Equity funds may help you achieve this.

Since you appear a conservative investor, balanced schemes offer a good beginning.

Invest in HDFC Balanced and ICICI Pru Balanced through the SIP (systematic investment plan) route. As you become more comfortable with mutual fund investments and your surplus also increases, consider other schemes to add to your portfolio.

Published on May 11, 2014

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