Duration, age and risk tolerance important to make MF choices

Low-risk equity funds such as large-cap and balanced funds good for new investors


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I have invested in two mutual funds (MFs)—Baroda Pioneer and SBI MF. Can you suggest 2-3 more schemes?

—Lokenath Kundu

It’s not mentioned which schemes you are investing in. It is also not known as to how you have invested in them—a one-time investment or a systematic investment plan (SIP)—or how long you plan to stay invested.

The time period for which you plan to invest (if using SIPs) and how long you plan to stay invested are crucial to make fund choices, as are your age and risk tolerance. Assuming that you are a new investor trying to increase market exposure, you should invest with a long-term horizon (above 5 years). Choose low-risk equity funds such as large-cap and balanced funds. You may refer to Mint’s curated list of 50 MFs (http://mintne.ws/2ax8SYA ).

Are MFs with low net asset value (NAV) better than those with high NAV?

—Rani S.

The absolute value of NAV of the fund that you want to invest in does not matter at all. An older fund with a proven track record is likely to have a higher NAV than a younger fund (assuming we are comparing growth options of both schemes). This does not make the younger fund a better choice. One can argue that older MFs with steady performance would make a better investment than younger, unproven funds.

Similarly, the dividend option of a scheme will have a lower NAV than the growth option of the same scheme (since dividends issued will lower the net assets in the scheme). This does not make the dividend option of a scheme more desirable. The only thing that matters is the difference between the NAVs of your scheme at the time of selling (redemption) and at the time of buying.

I am 32 and recently started investing in MFs through SIP for my retirement. My portfolio is: Rs.4,000 each in SBI Bluechip Equity and Birla Sunlife Top 100; Rs.3,000 each in Mirae Asset Emerging Bluechip and BNP Paribas Mid Cap, and Rs.2,000 each in DSP Black Rock Micro Cap and ICICI Prudential Value Discovery. I have moved Rs.4,000 that I used to invest in Public Provident Fund (PPF) to Axis Long Term Equity Tax Saver Fund. Am I on the right path?

—Krish S.

You are investing about 38% in large-cap funds, 27% in mid-cap funds, 27% in diversified funds, and the remaining 8% in a small-cap fund. This is an all-equity aggressive portfolio. Although you are young and are investing for the long term, it is always prudent to have some debt investments in your portfolio, especially considering that you are moving away from your PPF investments.

You could replace one of your large-cap funds with a short-term debt fund, such as UTI Short-term fund, to get to a 20% debt allocation in your portfolio and still have quite a growth-oriented set of investments. Other than that, your choice of investments is in line with your retirement goal.

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