Are you a rookie fund investor?

The funds I picked up were:

SBI Blue Chip: Rs 40,000
SBI Magnum Contra: Rs 40,000
Birla Infrastructure: Rs 20,000
Fidelity Special Situations Fund: Rs 20,000
Franklin Templeton India Fund: Rs 20,000

Now I am looking a huge losses. Should I sell it all off?

Being a new player in the market, I was not even aware of what a Systematic Investment Plan is. I put my money on the advice of someone as the market kept rising.

What must I do?

- Ajay Kumar

If you joined the bandwagon to make a quick buck and exit, we think you should consider exiting the market. That means, sell all your units.

The stock market can remain highly volatile for quite some time from here on and there would be little on offer for short-term investors.

However, if you have time on your side and can stay invested for at least the next three to four years, then you should not sell. But you should not panic either.

The equity market is bound to witness a bearish or bullish phase and there will be ups and downs. But, over the long-term, it has the potential to generate far superior returns than any other asset class like debt or gold.

To participate in this long-term potential of equities, you will have to tide over the testing times.

The present losses are likely to be temporary. Just make your future investments through the SIP and avoid investing in new funds.

This should hold you in good stead.

I am 29, never in invested in a mutual fund or shares. I am looking at a one to three year investment with tax benefits. What do you suggest?
What is a SIP?

- Alap Pandya

To avail tax benefits by investing in mutual funds, you have to have an investment horizon of at least three years. This is because tax-planning funds come with a lock-in period of three years and you will not be able to withdraw your money from them before that period.

Therefore, think about them only if you can stay invested for that long.

The funds that provide you with tax benefits are known as Equity Linked Savings Schemes.

These funds provide you with tax exemption under Section 80C, just like National Savings Certificate and Public Provident Fund. Read PPF vs NSC to understand those instruments better. 

The limit under Section 80C is Rs 1,00,000. You can invest this entire amount in ELSS if you wish to.

Another type of fund that offers similar tax benefits is the Templeton India Pension Plan. But, unlike an ELSS, it does not invest all its money in stocks. Around 40% goes to equity while 60% in debt.

Therefore, if you are looking for moderate returns with lower volatility, this will be an excellent fund to invest into. But, if you are willing to invest in an all-equity fund, then pick a couple of good ELSS funds and keep investing regularly through a Systematic Investment Plan.

SIP is just a way to invest in funds. Through this, you can invest small amounts in a fund regularly, say monthly or quarterly, as per your convenience. So let's say you decide to do a monthly SIP of Rs 1,000. So every month, Rs 1,000 will go into the fund of your choice.

The major advantage of SIP is that it does away with the need or effort to time the market. When the market rises, so does the NAV of the fund; as a result, you will get fewer units. When it falls, the NAV too falls and you will get more units. So, over time, the cost you pay for the units averages out.

Historically, SIP has proved to be an efficient way to invest in equity funds. All the mutual funds provide you with the facility to invest regularly and the amount per installment can be as low as Rs 500.

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