I am 30 and salaried. I am new to mutual fund investment. I plan to invest in a ULIP for insurance as well as investment. I can invest ₹2.50 lakh a year. I am told that if I stay invested for the whole policy term, I can expect a return above inflation rate.

- P Angami

Unit-linked insurance plans (ULIPs) are not the ideal investment vehicle for the long term. You will receive low insurance cover and be stuck with a product that is fairly expensive. More importantly, you must clearly understand the difference between investment and insurance.

While over the very long term there may be a possibility that ULIPs deliver reasonable returns, the costs are still very high, especially in the initial years. It is also not easy to stop a policy and exit mid-way, if its performance is not up to the mark.

Instead, take a term cover online for ₹1 crore from any life insurer, whose premium would be quite low given your age. Then invest in a mutual fund to reach long-term financial goals. You can switch or sell schemes with ease in the case of any underperformance.

After paying the annual premium for your term policy, you will be able to invest ₹20,000 every month in mutual funds. Park ₹5,000 each in ICICI Pru Focused Bluechip, UTI Equity, and Quantum Long Term Equity. Park ₹3,000 in Franklin India Flexi Cap and ₹2,000 in HDFC Balanced. This way, you have a blend of large-caps, a few mid-caps and a hybrid scheme. Over the years, build a balanced portfolio with investments in equity mutual funds, debt (PPF, RDs, Tax Free Bonds and NSC), gold and real estate.

I have just started investing in the following funds: ₹3,000 each in Quantum Long Term Equity, ICICI Pru Focused Bluechip and Franklin India Flexi Cap and ₹2,000 in IDFC Premier Equity. I want to accumulate ₹1 crore in 15 years. My risk tolerance is moderate.

- Shreekanth

While you do have a long-term investment horizon and a good portfolio of funds , it may still be a stiff task to reach your goal. If you invest ₹11,000 every month for 15 years and the returns are 12 per cent annually, you will be able to accumulate only about ₹55 lakh. For the same level of investment, you will need to increase the timeline to reach your goal by another five years. Alternately, try to increase your investment amount by at least 5-7 per cent every year, so that you can reach the goal in 15 years.

The schemes in your portfolio all have a fairly proven track record. You can retain all the funds. If at all, you can consider stopping SIPs in IDFC Premier Equity and move over to ICICI Pru Value Discovery.

IDFC Premier Equity has an excellent long-term record, but has been lagging behind top-notch peers over the past 12-18 months. Book profits and move to the safer debt if you reach your target ahead of time. I am 27. I have recently invested ₹20,000 in SBI Magnum Midcap and ₹40,000 in SBI Pharma. My time horizon is one year. Can I remain invested in these? If I redeem them before one year, do I have to pay any taxes? Also, I want to start a systematic investment plan for ₹2,000 a month. My time horizon is three years.

Krishna MK

You have invested in two funds from the same house, denying you the benefit from the investment style of different fund managers. There is also no focus in your choices as you have chosen a mid-cap fund and a sector scheme. The other flaw is investing in equity funds with a one-year horizon, which is too short a period for such instruments to deliver significant results.

Selling equity schemes would entail payment of short-term capital gains tax (15 per cent). If you wish to benefit from equity mutual funds, you must invest for a minimum of five-seven years to derive inflation-beating returns. Also, SIPs rather than lumpsums is a better idea of getting into the market as you average costs in volatile markets and would not end up exposing your entire investment to risk.

For a one-year time horizon, sell both the schemes and move the proceeds to fixed deposits or any attractive fixed maturity plan. Again, since the ₹2,000 that you wish to invest is just for three years, balanced funds will work for you. Invest it in HDFC Balanced.