Mutual Fund: Nimesh Shah

Nimesh Shah, Managing Director & Chief Executive Officer, ICICI Prudential Asset Management Company, answers your questions

While choosing an equity fund scheme, what factors should one take note of?

It is important to have a long-term investment horizon, as equities could be volatile in the short term but tend to outperform all asset classes over the longer term. Also, choose equity schemes according to your risk appetite. For instance, diversified equity funds are likely to be less volatile compared with sector funds. In the latter, the risk is skewed towards a particular sector, rather than being spread across the market.

Look at the long-term performance record of the equity scheme. Also, past performance of these funds across market cycles is a good indicator, looking only at this is like looking at the rear view mirror to drive a car. Also, looking at only recent performance might also not be the right way to evaluate a fund. Further, it is of utmost importance to look at the reputation of the fund house and their investment philosophy. Look also at the experience and background of the fund management team, which would be managing the scheme.

The lock-in period of my equity-linked savings scheme (ELSS) is coming to an end. Is it necessary to redeem it? If the money remains invested, will it continue to earn returns?

Your investment in ELSS would have helped you to derive the twin benefits of taxation and capital appreciation from equities. After the lock-in period is over, your investments continue to benefit from the capital appreciation offered by equities.

I have some lump-sum money to invest. Should I invest now or wait?

This would depend on your current asset allocation strategy. If under-invested in equities, you may look to invest it in equity strategies which are defensive (or have cash), as equity markets have run up and if the markets offer opportunities over the next few months or one year, these strategies will have enough cash to buy equities. It might be a prudent strategy, thus, to add flavour of funds in the balanced, dynamic or asset allocation category. These funds seek to increase allocation to equity when the markets are cheap, and book profits in equities when markets are rising, thereby reducing volatility and boosting returns.

However, if well invested in equities, we recommend investing this amount in a staggered manner through equity mutual funds over the next six to nine months. With the current price of crude oil and good growth prospects, India is the most attractive emerging market in the world and, therefore, it is an opportunity for people to invest long-term in Indian equities. The outlook for equity markets is quite positive for the next three to five years.

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