Less risks, reasonable returns

I am new to mutual fund investing. I am interested in investing for 4-5 years. I am 60, so I cannot take risks. Suggest some good funds.

–Dasarath Reddy B

Assuming you are looking at capital appreciation with some risk, you should consider investing in a few equity-oriented hybrid funds. These funds maintain a 60:40 equity-debt allocation, where the equity allocation gives capital appreciation and the debt portion ensures stability. You can consider HDFC Prudence or Reliance Regular Savings Balanced funds.

I want to invest Rs 1 crore in an instrument that gives me returns of over 8 per cent and safety for three years.

-Rathnesh Rao

You seem to be conservative with your investments. A safe way, in your case, is to allocate 80-85 per cent of Rs 1 crore in a three-year fixed maturity plan (FMP), with the rest in a large-cap fund through systematic investment plan (SIP) over two years. Opt for Franklin India Bluechip or IDFC Imperial Equity Plan A.

I have been investing Rs 1,000 in mutual funds for eight months. I also have a Rs 4,000 recurring deposit with the Post Office and an extra Rs 5,000 to invest every month. Are any changes required in my investment?

Funds

Category

Returns (%)

3-year5-year Franklin India Blue ChipLarge Cap7.0716.64 HDFC Top 200Equity: Large & Mid Cap10.4919.36 ICICI Pru Discovery-GEquity: Mid & Small Cap14.8516.52 Reliance Regular Savings Fund - EquityEquity: Multi cap3.5324.08 HDFC PrudenceHybrid: Equity-oriented11.4618.47 AIG World Gold FundEquity: International Funds-- Returns as on January 28, 2011

-Satish

You have selected good funds that offer diversity. But for a new investor, you would be better with large- and large- & mid-cap funds till you get experience. You could have selected a better multi-cap fund, like Quantum Long Term Equity or Reliance Equity Opportunities, instead of Reliance Regular Savings-Equity. For gold investment, you could have opted for a gold exchange-traded fund (ETF) instead of an international gold fund.

With the extra Rs 5,000, increase investments in large- and large- & mid-cap funds. Continue Post Office deposit, but the interest is taxable.

I had invested Rs 10,000 each in Birla Sun Life Tax Relief 96 and Kotak Tax Saver in January 2008. The lock-in period just got over. But the funds are doing badly. If I redeem now, I will be at a loss. How can I recover my losses?

-Vijay

You bought into these funds when they were highly priced, that cannot be undone now. Also you enjoyed tax benefits on these investments.

These funds are not bad and could turn around. However, that is a risk you will be taking. You can recover your losses by investing in funds that earn better.

Consider a systematic withdrawal plan (SWP) on these funds and invest the proceeds in large-cap fund like Franklin India Bluechip or IDFC Imperial Equity Plan A. You will exit these funds over time and also invest in stable funds, cover your losses.

Value Research