Go for a diversified mutual fund portfolio for long term

If you are investing for the long term (say, next 10 years or so), it would be better to go with a more diversified approach to the market


I am 41 years old and my monthly income is Rs53,000. I have systematic investment plans (SIPs) of Rs3,000 per month in Birla Sun Life Small and Midcap Fund, Rs2,000 in Birla Sun Life MNC Fund, and Rs1,000 in Franklin India Smaller Companies Fund. I can invest a total of Rs11,000 per month. What changes or additions should be made to my portfolio?

—Hasan Lakhte

You are at present investing Rs6,000 in three funds, out of which two are funds that focus on the small- and mid-cap segments of the market and the other is a thematic fund that invests only in multinational companies.

Assuming you are investing for the long term (say, next 10 years or so), it would be better to go with a more diversified approach to the market than this. The fact that you want to increase your SIP amount to Rs11,000 gives us an opportunity to redesign the portfolio to make that happen. I would recommend that you invest Rs5,000 in a large-cap oriented fund, Rs1,500 each in two mid-cap oriented funds, and the remaining Rs3,000 in a conservative balanced fund.

To do that, given your current portfolio, take the money you are presently investing in the two Birla Sun Life funds and combine them into a single Rs5,000 investment in the Birla Sun life Frontline Equity Fund. You can up your investment in the Franklin fund to Rs1,500 and add Mirae Asset Emerging Bluechip Fund as the second mid-cap fund.

You can choose HDFC Balanced Fund for the remaining Rs3,000. With this, you will have a broad coverage of the market as well as toning down of its risk profile (with about 90% in equities, this would still be an aggressive portfolio).

I have about Rs8 lakh after redeeming some mutual funds. Where should I park the fund for short term instead of a savings account?

—M.P. Ravikanth

As alternatives to savings account, the best place to park your money is to invest it in liquid mutual funds. These days, there are some interesting options available in the world of liquid mutual funds for this purpose.

A couple of mutual fund companies are offering liquid fund products that can be regarded as alternatives to savings accounts. Reliance Mutual Fund, for example, offers the Reliance Money Manager Fund that comes with an ‘any-time-money card’ that lets you withdraw money from ATM machines (up to certain limits). They also allow for quick redemption, which makes money available in your linked bank account any day of the week within half an hour. DSP Blackrock has also offered a similar service, where the redemption proceeds are deposited in your bank account immediately.

In both cases, the fund investment offers a way to gain more from your idle money, than from savings bank accounts, without sacrificing availability of funds.

I am 31 years old and in a private job. My annual income is Rs2.5 lakh. l want to invest in mutual funds. How should I go about it?

—Sanni Pal

With a monthly income of Rs 20,000, the first thing you need to figure out is how much money you can save regularly. The first thing you need to do is to ensure that you have enough money put away for emergency purposes. You should have about Rs50,000 in either a deposit or a liquid fund before you start investing in long-term mutual funds. So, the first utilisation of your monthly savings should go to building this emergency fund. Once you are done with this, you can start investing in regular mutual funds for long-term benefits and market-based investing. To start with, you can invest in a simple balanced fund such as Tata Balanced fund using an SIP with a part of your monthly savings.

As your savings grow over the years, you can grow your portfolio by adding good funds from other categories such as large-cap funds and diversified funds.

Srikanth Meenakshi is co-founder and COO, FundsIndia.com.

Queries and views at mintmoney@livemint.com

More From Livemint