Mutual Fund: Nimesh Shah

Is it better to invest in a balanced fund or in equity and debt funds separately?
Balanced funds are suitable for investors looking for benefits of the asset allocation model in a single structure, using a pre-determined ratio between equity and debt, which is generally 70/65-30/35. These funds seek to offer the benefit of both worlds, as equity has the potential to deliver reasonable long-term returns, while debt provides relative stability to the portfolio.

Within balanced funds, there are certain products which allocate dynamically between equity and debt, using a valuation yardstick such as price-to-book value. Such funds are suitable for investors with a moderate risk profile, as the portfolio is constructed keeping in mind such a profile

Investors can also follow an asset allocation model by using equity and debt mutual funds, but the risk appetite of the investor needs to be matched basis the category of the fund. For instance, within equity funds there are aggressive categories like mid-cap funds or thematic funds, which are suited for investors with high-risk appetite.

If I am unable to pay a systematic investment plan (SIP) instalment in a particular month, is there a penalty? Can I make up by paying double the amount the next month?
As a matter of discipline, one should not miss the monthly instalment on SIPs. If one does, there is no penalty charged. In this case, the mutual fund SIP account will continue to remain active, and the SIPs would be debited subject to your bank balance. However, if an investor skips three consecutive SIP instalments, the account could get terminated. Investors who know beforehand that they would be unable to pay an instalment in certain month(s) can take a pause for their SIP investments.

The views expressed are expert's own. Send your queries to yourmoney@bsmail.in
Nimesh Shah, managing director and chief executive officer, ICICI Prudential AMC, answers your questions