Have a query regarding mutual funds? Maybe we can help.
Drop us a line and our mutual fund experts, Value Research, will do the needful.
I recently invested in the following new fund offerings based on hearsay.
Reliance Equity Opportunity Fund: Rs 50,000
SBI Midcap Fund: Rs 50,000
SBI Multicap Fund: Rs 50,000
Pru ICICI Infrastructure Fund: Rs 1,80,000
Do you think I should sell now and book profits?
- Ravi Kohli
First, we would like to advise you not to invest in any fund merely on the basis of hearsay.
While investing, one should not get carried away by the fancy names and tall claims that are being made about the fund prior to its launch. Find out the investment objective of the fund and where it would be investing your money. If you think it suits you, consider investing in it.
Second, we believe it is always better to invest in a well established fund with a proven performance record. There are plenty of good funds to choose from for all types of investors.
To compare funds, you need to look at returns and risk. How to compare mutual funds and How risky is your mutual fund? will enable you to do that.
Going forward, we think you would be better off selecting a few good diversified equity funds and investing in them regularly via a Systematic Investment Plan. This means you invest a fixed amount every month.
Avoid investing a lump sum. Should the stock market fall shortly after you invest, the Net Asset Value of the fund you invest in will also fall and you might have to wait a long while for it to rise again.
Third, you mentioned you had been investing in fixed deposits and government bonds. Shifting to all-equity funds is a sharp contrast, since an all-equity portfolio is bound to be fairly volatile.
If that bothers you, you can consider adding balanced funds to your portfolio. These funds invest in fixed income instruments and shares. They may not provide as high a return as equity funds, but they will bring stability to the portfolio as the downside risk in debt (fixed return) instruments is substantially less than in equities (shares).
To understand balanced funds better, read Why you must invest in a balanced fund and 5 great balanced funds.
You should sell your units if you are not optimistic about the performance of the stock market. Since no one can accurately predict the direction of the stock market, we always recommend investing small amounts regularly.
From the taxation point of view, it would not be advisable to redeem (sell) your current investments now as the gains you may have made will attract capital gains tax. We would recommend you track the performance of these funds closely. Consider selling only if they perform poorly.
Every month, I put in some money in a mutual fund via a Systematic Investment Plan.
Franklin Prima: Rs 2,500
Franklin Flexicap: Rs 1,000
Tata mutual fund: Rs 1,000
ICICI Dynamic fund: Rs 1,000
Where must I invest to save around Rs 10,000 every month?
- Prashant Silas
Firstly, we would like to compliment you for making the right decision to invest through the Systematic Investment Plan route and periodically investing small amounts every month.
You have not mentioned which Tata Mutual Fund scheme you have invested in. Hence, we shall restrict our discussion to the other three funds.
Franklin India Prima is predominantly a mid-cap fund, while Franklin India Flexi-Cap has the flexibility to invest in stocks across different market capitalisations. Prudential ICICI Dynamic is an asset allocation fund, which has the option to invest upto 100% of its assets in equity (shares) or debt (fixed return) instruments, depending upon the prevailing market conditions.
As on July 31, 2005, the fund had invested 94% of its assets in equity.
Among your funds, Franklin India Prima is one of the picks from the mid-cap oriented funds. But, do remember mid-cap stocks have a tendency to be more volatile and hence are considered riskier. Should that make you feel uncomfortable going forward, avoid investing heavily in this fund.
Read Why mid-caps are hot and Should you invest in a mid-cap fund to understand this better.
Franklin India Flexi-Cap is a very new fund. Though its performance so far has been promising, it still has a long way to go before establishing itself as one of the better equity funds.
Pru ICICI Dynamic has maintained an equity-dominated portfolio since its launch, and has delivered good returns.
For your future investment, we think you can add a good diversified equity fund, which has performed well over a long term-horizon, to form the core holding of your portfolio. You can consider funds like HDFC Equity and Franklin India Prima Plus, which have good performance records. These funds can move between large-caps and mid-caps depending upon the outlook of the fund manager.
If a lock-in of three years is not a problem, you can even consider investing a part of your money in Equity Linked Saving Schemes. These are diversified equity funds that also give a tax benefit under Section 80C.
Read Which ELSS fund should you invest in to check out the fund options and All about Section 80C to see which other investments fall under it.
Got a question for Value Research? Please write to us!
Note: Questions may be edited for brevity. Due to the tremendous response, all queries will not be answered.
Disclaimer: While efforts have been made to ensure the accuracy of the information provided in the content, rediff.com or the author shall not be held responsible for any loss caused to any person whatsoever who accesses or uses or is supplied with the content (consisting of articles and information).
Illustration: Dominic Xavier