I am 38 years old and would like to invest in mutual funds through the SIP mode. I can invest Rs 4,000 every month and have an investment horizon of 10 years. In which funds should I invest?

K.A. Suresh Kumar You have done many things right towards the process of building a healthy portfolio. Investing regularly with a long-term horizon through the mutual fund route is a disciplined way to accumulating wealth.

Since you are just starting out on your mutual fund investments, you must opt for a relatively moderate-risk portfolio. As you become more comfortable with investing in equity schemes and as your surplus increases, you can look to expand the number of funds that you invest in.

Invest Rs 2,000 each in ICICI Pru Focused Bluechip and Quantum Long Term Equity. These are predominantly large-cap funds with proven record of delivering returns consistently.

If you have a lower risk appetite, choose one of the above funds and park Rs 2,000 per month in it. The balance can be invested in a balanced scheme, which carries lower risks. You could consider adding HDFC Balanced to your portfolio and put Rs 2,000 in it very month.

Over the long term, accumulating wealth involves investing in varied asset classes based on your risk appetite, age and investible surplus. Try to invest in equity, debt, gold and real estate over the next decade or so to build up a diversified portfolio to generate optimal returns.

*** I am a bachelor, aged 26. I am keen on investing in mutual funds. But I am not sure if that will be a wise decision, considering that I would want to invest only for the next two years. After two years, I may take an educational break for two years, though there is no certainty on whether I would make the move. Currently, I can invest Rs 10,000 every month and have no financial obligations for the next two years.

My aim is to derive maximum returns from my savings and I would not mind investing half the sum in high-risk avenues. I have an insurance policy from LIC (cover of Rs 75 lakh, with all premiums paid) and a family health cover.

Given this background, which funds should I be investing in?

Sagar Samel

As you have rightly observed, investing in equity schemes with just a two-year timeline may not be a wise move. With such a short horizon, you could potentially incur losses as a result of volatile markets.

For investing in equity schemes, you will need at least a five to seven-year horizon to derive meaningful inflation-beating returns. Now, given that you have still not made up your mind on whether you would take a study break after two years, it is ideal for you to stick to safe debt investments.

You can invest in a recurring deposit, which would be the safest option. But you have also stated that you can take high risks on a portion of your investments. In such a scenario, you can consider debt funds which invest in gilts or dynamic bond schemes. While there is no guarantee that you will ‘maximise’ your returns by investing in these funds, there is scope for reasonable capital appreciation.

Consider investing in IDFC GSF Short Term, Religare Invesco Gilt Short Duration, Birla Sun Life Medium Term and Templeton India Corporate Bond Opportunities. These are quality gilt and dynamic bond funds with a proven track record.

For short-term investing these would be ideal avenues. If you plan to study after two years, it would be better for you to take an education loan as it would provide you tax breaks and your existing investments can be set aside for any contingencies.

If you choose not to take a study break, you can consider investing in equity schemes for the long-term later on.

*** I had invested in SBI Magnum TaxSaver through the SIP route from June 2008 to February 2009 and the total amount parked was Rs 32,000. I also invested in Sundaram Tax Saver from May 2009 to Nov 2010 to the tune of Rs 31,000. Both investments were in dividend options.

Since both the funds are not performing well, should I stay invested in these schemes or move to another consistent plan, which could fetch good returns? The lock-in period of three years has also been completed.

Hema

The two tax-saving funds that you have chosen have been underperforming, as you have correctly stated. While making SIP investments in tax saving funds, do note that each instalment is locked for a period of three years. In your case, though, the lock-in period is over.

It is not clear why you chose the dividend option. Unless, you need regular cash flows from your investment, it is better to stick to the growth option. Now, consider switching your investments in SBI Magnum Tax Saver and Sundaram Tax Saver to a couple of other proven schemes.

There are two options for you. If you want to have tax benefits from these investments, you can switch over to consistent funds such as Franklin India Taxshield and Canara Robeco Equity Tax Saver. On the other hand, if you want to shift to regular investments, you can consider parking the proceeds in some quality large-cap funds.

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