Have mutual funds become a risky investment?

The stock markets are at an all-time high. In such a situation, many of us are tempted to invest in equity.

The experts tell us that a safe way to do this is through mutual funds, particularly if we don't know too much about investing in the stock market.

The question, however, is -- which mutual funds should you invest in?

Apart from mutual funds, what other investments give you decent returns? How much money should you ideally invest in stock markets, mutual funds, real estate, debt and commodities?

Wealth management expert Sanjiv Mehta discussed wealth and mutual fund-related aspects in a chat with Get Ahead readers on June 27.

For those of you who missed it, here is the transcript.

Part I: How to secure your financial future

Part III: The best investment options for YOU

Gulf Nri asked, All markets are at a peak, be it stocks, property or gold? What should one invest in? Property prices are expected to crash 20 per cent, Sensex might correct itself since it's at a peak and most stocks are overvalued. Isn't gold a safer option?

Sanjiv Mehta answers, Stocks still are not overvalued. With the economy growing at 9 per cent and corporate earnings growth also healthy, there are opportunities. Of course, you have to follow the general principles of diversification, valuation and appropriate time horizon. For real estate, again, you have to be selective and have an even longer time horizon. Gold, as I answered in an earlier question, has not provided comparable returns.

Viswanathan asked, Hi Sanjiv, I've a SIP in Reliance Vision, Franklin Prima, DSP Merrill Lynch Opportunities and Fidelity India mutual funds. How would you rate their performances? Is it good to hold onto them?

Sanjiv Mehta answers, Prima has faltered a bit in the last couple of years, but the rest have done pretty well. A deeper look at Prima shows that they have a low churn, they have stuck to a few stocks they believe in and giving them some more time might be beneficial.

sanjib asked, Dear sir, which is the correct investment for higher returns in the long term? NSC, PPF, Mutual Funds or Insurance?

Sanjiv Mehta answers, NSC and PPF have very little real rate of return (that is after taking into account inflation). Insurance should not be mixed with investment, therefore stick to term insurance. Mutual funds with a good track record should be considered seriously.

Harish asked, Hi Sanjiv, my presnt take home is Rs 65K. Housing loan EMI is Rs 15K & personal expenditure is Rs 15K per month. LIC is Rs 5k per month. I am left with Rs 30K saving in hand. Is it better for me to clear off my housing loan as the interest rates have gone up? Or is it worth investing in real estate?

Sanjiv Mehta answers, Since you have a good cash flow situation, continue your housing EMI. It will be advantageous to invest the savings in equities, following all the principles of course.

Jerry asked, Hi Sanjiv, Posting query once again. How should a person who is aged 38 invest in various instruments like Mutual Funds, Equity, Debt, Commodities, Real Estate? Please specify the percentage to be allocated to each sector?

Sanjiv Mehta answers, Any portfolio should start with liquidity, safety and yield enhancing (giving higher returns after tax) part. Liquidity could be 10 per cent, safety 20 per cent and yield enhancing investments 70 per cent. Given that you are 38 years, I am assuming a fairly long time horizon for your cash flow needs. Equity or equity mutual funds can be 40 per cent, real estate 25 per cent and commodities 5 per cent. Debt, in any case, will be there, satisfying the liquidity and safety part of your portfolio.

BHUPAL asked, Sir, can you suggest a best insurance plan to cover my life? I am not interested in profit plans. I want plain insurance cover of Rs 50 lakhs. Which will be the cheapest & safe policy to cater to my needs?

Sanjiv Mehta answers, Just take term insurance from any good and well known insurance company -- buying only term will help you in comparing the prices clearly also.

Hitesh asked, I would like to know that at this point of time when market is at 14,500 is it safe to keep on investing in mutual funds or stock market? I have been investing for the past three years but got a very nominal return that too in five-star rated funds?

Sanjiv Mehta answers, At this level also, it will be safe to invest in funds with good ratings. The important thing is not to churn and stay with good funds with patience. The 3-year returns of all good funds are pretty impressive.

shalinishukla asked, My yearly salary is Rs 22 lakhs. After everything my take home is Rs 90k. What do you think should be my saving strategy considering that you can assume that I can easily save around Rs 60k monthly?

Sanjiv Mehta answers, If you do not have a house of your own, you should decide on one after due diligence. You can afford to pay a good EMI. Rest can be invested in well rated diversified equity funds.

vaishali asked, How is ICICI Pru Mutual Fund doing?

Sanjiv Mehta answers, For the last 2-3 years, some of their equity funds have performed well. However, like for any other asset management company, one has to evaluate each scheme individually before investing.

Part I: How to secure your financial future