Mutual Fund: Nimesh Shah

Today, Nimesh Shah, managing director and chief executive officer, ICICI Prudential Asset Management Company, answers your questions

I am 65 and want to invest in mutual funds. But I have never invested in stocks. How should I go about it?

It is a good decision to think about investing in mutual funds, as these offer the benefit of professional management and diversification at a lower cost. In your case, we assume your larger requirement would be stability of returns and regular inflows of income. This can be achieved by investing a credible portion of your investments into monthly income plans (MIPs)/hybrid schemes. MIPs have a higher weightage to debt securities, which give stability and a marginal allocation towards equity which has the potential to create long-term wealth.

Gold prices are falling in the international market. Is it a good time to invest in gold ETFs?

Yes, gold ETFs are an efficient way to invest in gold. The good part about gold is that it offers a reasonable dollar hedge which other products might or might not give. You may allocate 5-10 per cent of your total wealth in gold, excluding jewellery, for diversification. It is apt to mention here that in the past two years, gold as an asset class has not performed well. Going ahead, financial assets are likely to outperform physical assets like gold.

How does an arbitrage fund work? Who should invest in these?

These funds aim to take advantage of the arbitrage opportunities between the cash and the derivative market to generate returns. Investors with low appetite for risk could consider these. Also, the product is tax-efficient, classified as equity funds, giving them the benefit of no tax on long-term capital gains if held for more than a year.

Is it a good time to invest in banking sector funds?

The banking sector is a play on economic recovery. Improving macroeconomic variables like the current account deficit, fiscal deficit and inflation could benefit the sector. Recovery can also help improve the asset quality of banks. There can also be scope for better loan growth. The new government is likely to bring in a trend of reforms for public sector banks, which could resolve many issues. We are positive on the banking sector over the next three to five years.

That said, sector funds are suitable for investors with a good risk appetite, as the portfolio is skewed towards a particular sector and does not offer diversify. Invest in such fund only if you have the knowledge and a positive view on a particular theme or sector and are willing to wait for the theme to play out.

The views expressed are the expert's own. Send your queries to yourmoney@bsmail.in