I want to invest Rs 20,000, divided into two equal parts, in two mutual funds for a long-term (three-five years). Is this the right time to invest in MFs? In the current financial year, I already have put Rs 10,000 each in Kotak Tax Saver and ICICI Prudential RIGHT.
-Mohan
It's difficult, if not impossible, to predict market movements. Trying to time markets is a futile exercise. We, therefore, advice you to invest consistently via a systematic investment plan (SIP), so that you can average out your cost of purchase. Both funds in your portfolio are large-cap oriented, tax-saving funds. These funds offer tax benefits, but they have a three-year lock-in.
Kotak Tax Saver is two-star rated and ICICI Prudential RIGHT is a new fund (September 2009), lacks a track record. Kotak Tax Saver's performance in 2008 and 2009 was disappointing. In our view, do not invest further in these funds. If you have to invest for tax saving, choose funds which have been around for some time, with a good track record. We suggest Sundaram BNP Paribas Taxsaver and Magnum Taxgain.
For three-five years horizon, you should have some part of your portfolio in debt, to provide stability. If you already have debt exposure, then invest in equity diversified funds like HDFC Top 200, Magnum Contra or DSPBR Equity. If not, invest in balanced funds like DSPBR Balanced, HDFC Prudence or Birla Sun Life 95.
I invest Rs 1,000 per month in ICICI Prudential Infrastructure fund. What would be the best fund in ICICI Prudential's stable to switch to from my present fund, keeping in mind a horizon of five-seven years?
-Abhishek
ICICI Prudential Infrastructure, a five-star rated fund, is among the good ones of ICICI Prudential. Although it's a thematic fund, we do not see any fault in holding on to it for the same time period. But, remember such funds should not constitute more than 20 per cent of your portfolio.
Some other good funds are HDFC Top 200, DSPBR Equity and ICICI Prudential Dynamic.
I have invested heavily in the large-cap space. Suggest some mid-cap funds I could invest in for three to five years. I am a bit worried about investing in mid-caps, since they are quite volatile.
-Kishore
Market volatility can work in your favour if you do not plan a significant position (up to 15 per cent) in the mid-cap space. The mid-cap funds will provide a push for your portfolio in rising markets, while the large-cap funds will prevent any significant downside when markets tumble.
Some of the best mid-cap funds that you can consider are BSL Mid-Cap, IDFC Premier Equity, Sundaram BNP Paribas SMILE and Sundaram BNP Paribas Select Midcap.
Please tell me about mutual fund investments through SIPs. I want to invest Rs 10,000 per month for approximately five years.
-Anshu Shah
SIPs allow an investor to invest a fixed amount regularly in a systematic way. It offers the benefit of cost averaging. That is, by purchasing mutual fund units over a period of time, you automatically buy more units when the prices are low and fewer units when the prices are high, resulting in lower average per unit cost, making your investments less volatile.
For five years, equities would provide reasonable returns, with reduced risk of cyclicality of equity markets. Choose two-three funds such as HDFC Top 200, DSPBR Equity or Magnum Contra. You may even choose to invest in balanced funds, which are more stable than pure equity funds. Our choice of balanced funds includes HDFC Prudence, Birla Sun Life 95 or Tata Balanced.
