Mutual funds for first time investors

Have a query regarding mutual funds? Maybe we can help.

Drop us a line and our expert, Anil Rego of Right Horizons, will answer it.

Got a question for Anil Rego? Please write to us at getahead@rediff.co.in with the subject line as 'Mutual Fund query'.

Dear Sir,

I invest in Franklin India Opportunities Fund-Growth monthly SIP of Rs 10,000 (earlier planned to continue for 15 years). My question is: can I continue FIOF SIP or switch to some other fund? If yes, which fund should I invest in? Also, I want a start a new SIP of Rs 2,000 which fund do you recommend? This is for long term, say, 15-20 years. I have a LIC term insurance of Rs 25 lakh for which I pay Rs 8,925 per annum. Please guide me. Best regards,

Pravin K

Anil: For the investible surplus of Rs 12k per month, we suggest usage of three funds: the distribution can be equal. You can use any 3 of the following funds:

• Birla Sunlife Midcap (Century SIP) = Insurance + SIP
• Fidelity Equity
• HDFC Top 200
• SBI Magnum Contra
• ICICI Prudential Discovery

Hi, could you please let me know which is/are good MFs for tax saving and with high returns? Thanks,

net_lucky

Anil: Some of the tax saving funds with good track record are:

• Magnum Tax Gain
• Sundaram Tax Saver
• Canara Robeco Equity Tax Saver
• HDFC Tax Saver
• ICICI Prudential Tax Plan

Dear Mr. Anil,

I intend to invest Rs 1 lakh each in 6 good mutual funds with a time horizon of 5 years. I would also like invest Rs 4 lakh in shares with 1 to 2 years time horizon. Kindly advise which MFs & shares I should invest in and oblige. I am a 30-year-old businessman. Thanking you,

Mihir Gosavi

Anil: We suggest you to diversify Rs 5 lakh into two funds: one defensive and one aggressive fund, some of the funds that one can use are as mentioned below:

Defensive funds

• Franklin India Prima Plus
• Reliance Vision
• SBNPP Select Focus
• ICICI Discovery

Aggressive funds

• Reliance Regular Savings Equity
• Birla Sunlife Midcap
• SBNPP Select Midcap

We suggest you to deploy the funds into equity mutual funds at this point, since you are a novice investor. It is suggested that you indulge in direct equity only after acquiring adequate knowledge and expertise. Further, instead of a one-time investment, we suggest you to invest via systematic transfer over a weekly pattern.

Hi, I have few MF queries regarding Gold ETFs:

It seems that there are 2 types of Gold ETFs: investing in 'World Gold' & 'Domestic Gold': returns of both these fund types are very different. Which of these is best to invest?

I see that DSP-BR World Gold - RP (G) is best in terms of its returns. Please advice.

Anil: The World Gold funds like DSP-BR World Gold fund actually invests in gold mining companies. Since it invests in the companies, this will be higher risk-return that the Gold ETF. Thus, though the return is higher, the risk is higher and hence systematic investments are preferred instead of lumpsum investments.

Gold ETFs are directly linked to the gold prices in India. It will be affected by various factors such as festive season, exchange rate etc. apart from the international price of gold and the foreign exchange rate.

On how to select a MF? Although we look at past returns of a MF, I understand that historical returns is not a ideal indicator to select a MF. Please advice.

Rajesh

Anil: This is essentially one of the factors to evaluate a fund. We should also be looking at how it has performed against the benchmark. Other parameters such as size of fund, mutual fund house / fund manager expertise, style of investment, risk levels. Also, when one is looking at returns, look at the long term returns: ideal timeframe is 3 to 5 years.

What is your view on investing in debt funds at this point in time? Please suggest few debt MFs if advisable to invest now.

Hasmukh

Anil: With debt returns falling, debt funds have lost favour in the recent months, from here onwards, the interest rates are likely to slowly move northwards. In such a scenario, one can use floating rate funds/liquid plus funds.

Monthly income plans can be used as the small equity exposure that they have will help give a kicker to the returns.  Income / gilt funds are not ideal in such a scenario.

I've planned to invest in some of the following funds to diversify my investment, please advice if any of these are not good. P.S: My time horizon is 5 to 10 plus years. Thank you so much.

Vishal Jawa

Anil:

• Reliance MIP (G): Good
• Reliance Diversified Power Sector Fund -- Growth: Neutral. Preferable to avoid sectoral funds, but since this is an infrastructure sector, it can be used for the long term.
• ICICI Prudential Infrastructure: Good. A lay investor can prefer a diversified fund.
• Reliance RSF -- Balanced (G): In order to diversify across fund houses, one can also look at SBI Magnum Balanced / FT Balanced / HDFC Prudence.
• Birla Sun Life 95 Fund (G) -- Neutral: Within this MF house, Birla Sunlife Midcap is a better pick.
• DSP-BR World Gold -- RP (G): Good. Will be volatile hence prefer using systematic investments
• HDFC Index Fund -- Sensex Plus Plan: Good.
• HDFC Top 200 Fund (G) -- Good largecap pick.
• Reliance RSF -- Equity (G): Good.
• IDFC Small & Midcap Equity -- G: Within midcap one can use RSF Equity / Bilrla Sunlife Midcap which have been more consistent.

Additionally, we would like to add that, the number of funds that you plan to invest in is huge, suggest to restrict the number of funds between 6 to 8.

Dear Sir, I have invested around Rs 5.5 lakh in various MFs such as Tata Indo-Global Infrastructure Fund -- Dividend, Sundaram BNP Paribas Select Focus -- Dividend, Sundaram BNP Paribas CAPEX Opportunities Fund -- Dividend, Reliance Natural Resources Fund -- Dividend, Reliance Diversified Power Fund -- Dividend, JM Basic Fund -- Dividend, ICICI Prudential Infrastructure Fund -- Dividend, HSBC Equity Fund -- Dividend, HDFC Top 200 -- Dividend and DSP BlackRock India Tiger Fund -- Dividend in the period of BSE 22K (fourth quarter of 2007).

As you can see right now market is lower than when I invested. Please suggest what would be the best course to take out all the money with profit? Thanks in advance!

Janarthan

Anil: Most of the funds invested are good, you can however gradually let go of JM Basic and the sector specific funds -- you can continue to invest in the funds when the markets slump to average your cost. We suggest you to avoid investing in equities as lumpsum, use the systematic route and also avoid sectoral funds. You had invested in high beta sectors that had a large slump on the market fall. You would be better off letting the fund manager choose the sectors and move them by using diversified equity funds.

Hi, this is Bapuji. Is it good time for buying mutual funds in current market volatility? I want to buy with growth option HDFC Top 200, HDFC Growth Fund, HDFC Tax Saver and HDFC Equity Funds.Please suggest. Regards,

Anil: There will be huge concentration towards one single Mutual Fund House, we suggest you to diversify across other MF houses. Avoid having more than 20% concentration within 1 single MF house.

Dear Anil, I have the following investments in MFs. Please suggest if I can continue with the same schemes or switch any of the schemes to new schemes.

• Fidelity Equity Fund -- Dividend
• Fidelity Tax Advantage Fund -- Dividend
• Fidelity Wealth Builder Fund Plan B - Dividend Option
• SBI Magnum Tax Gain Fund-Dividend
• Franklin India Taxshield - Dividend
• Franklin India Prima Fund - Dividend
• Ft India Dynamic Pe Ratio Fund Of Funds - Dividend
• HDFC Long Term Advantage Fund-Div
• HDFC Tax Saver-Dividend
• Taurus Tax Shield - Dividend

Apart from the MFs, I have other investments as follows. Please advice should I move some of these to Equity MFs, Bank FDs, Corporate FDs, Shriram Transport. Would highly appreciate your help.

Thanks,
Balaji

Anil: Fidelity Equity Fund -- Dividend: Hold
Fidelity Tax Advantage Fund -- Dividend: Hold, lockin
Fidelity Wealth Builder Fund Plan B -- Dividend Option: Hold
SBI Magnum Tax Gain Fund -- Dividend: Hold, lockin
Franklin India Taxshield -- Dividend: Hold, lockin
Franklin India Prima Fund -- Dividend: Switch to Reliance Regular Savings Equity
Ft India Dynamic Pe Ratio Fund Of Funds -- Dividend: Hold
HDFC Long Term Advantage Fund -- Dividend: Hold, lockin
HDFC Tax Saver -- Dividend: Hold, lockin

There is too high concentration within single MF houses, we suggest you to avoid any further investments into Fidelity / Franklin, you can add Reliance and Birla into your portfolio, all tax saving MFs can be consolidated into diversified equity funds (post-maturity), preferably don't have more than 1-2 funds within 1 MF house. Also, keep a tab on number of funds you hold ideally it should not exceed 6-8 funds.

You can continue to hold the debt instruments, however, you can choose avenues which will provide tax free returns interest from Fixed deposits will be taxable at normal returns, Fixed maturity plans which are debt funds with low risk profile will be a better option within the same genre.

Dear Anil, I have query about Mutual Fund Vs. ULIPS. I want to build corpus of about Rs 1 crore in next 10 years. How much money should be invested monthly to achieve this target? Which route is preferred mutual fund or ULIPS? If mutual funds, which mutual fund would you suggest? I would like to have mix bag of best performing: large cap, mid cap, sector funds. With regards,

Kureshi

Anil: It is best to use a basket of avenues with a judicious mix of debt and equity to build the required corpus. Given the tenure of 10 years, we suggest  you to use both ULIPs and MFs with some amount into pure debt instruments. Approximately, you would be required to invest about Rs 48k per month for 10 years at a return of 10 per cent or Rs 36.5k per month at a 15 per cent return. You need to build a diversified portfolio to optimise on your returns.

Hi, I would like to invest in mutual funds for ensuring good financial condition in about 10 years time frame. I plan to invest Rs 2,000 per month at present and from early 2011 I plan to invest Rs 10K per month. Could you please suggest me mutual fund where I can invest the Rs 2K now and also how can diversify the MFs for Rs 10K. Thanks. Regards,

Kiran

Anil: For Rs 2k per month, we suggest you to diversify across about 2 funds. For the lumpsum investment, we suggest you to invest only in 1 fund. If you have not planned for your section 80C already, it is suggested that you use a ELSS fund, else a diversified equity fund

ELSS funds:

• Magnum Tax Gain
• Sundaram Tax Saver
• Canara Robeco Equity Tax Saver
• HDFC Tax Saver
• ICICI Prudential Tax Plan

Diversified equity

• Birla Sunlife Midcap (Century SIP) = Insurance + SIP
• Fidelity Equity
• HDFC Top 200
• SBI Magnum Contra
• ICICI Prudential Discovery