Invest 20% of your monthly income in mutual funds via SIP

But build a contingent fund first


I need guidance on investing in mutual funds (MFs). I am 34 with two kids and am a beginner to MF. I earn Rs.70,000 a month and have expenses of Rs.40,000.

—Mitika Srivastav

The general thumb rule of investing is to be able to invest 20% of your monthly income in a systematic investment plan (SIP). At present, you are able to save more than 40% of your income every month. You should deploy 20% of this into saving to build an emergency fund. You can start off an SIP with about Rs.12,000 a month, which you can increase once you have built a sufficient corpus in your contingency fund account.

You can start with a simple and balanced portfolio of 3-4 funds. For a long-term portfolio of Rs.10,000, you can invest equally (Rs.2,500 each) in four funds—a large-cap oriented fund such as SBI Equity fund, a multi-cap fund like Franklin India Prima Plus fund, a hybrid fund such as HDFC Balanced fund, and a pure debt fund such as UTI Short-term Bond fund. Overall, this would be a 70-30 portfolio with 70% in equity, but the presence of the hybrid fund will give this allocation some flexibility.

I have invested in a year Rs.1.8 lakh through SIP in the Axis Long Term Equity Fund (Tax Planning). The last SIP date was 25 July. When can I redeem the invested amount?

—Mukund Jha

If you have invested a total of Rs.1.8 lakh over one year (12 instalments) ending 25 July 2016, you have made an investment of Rs.15,000 a month starting 25 August 2015. The fund you have invested in is an equity-linked savings scheme (ELSS). Investments in these are locked for 3 years starting from the date of investment. So, your investments will start getting unlocked in August 2018, and all the units allocated over the 12 instalments would be fully unlocked by July 2019. You can start redeeming by August 2018.

I am 40 and have two kids in high school. I have the following MF investments through SIP: Birla Sun Life MNC fund Rs.1,000; DSP Black Rock Micro Cap fund Rs.2,000; DSP Black Rock Tax Saver fund Rs.1,000; HDFC Top 200 Rs.2,000; ICICI Focused Bluechip Equity fund Rs.1,000 and ICICI Long Term Equity fund Rs.1,000. Is this fine?

—Naveen Mishra

You are investing Rs.8,000 a month, of which 25% is going to tax-saving funds. The remaining 75% is split between large-cap funds (38%), a small-cap fund (25%), and a thematic fund (12%). Since tax-saving funds are, for the most part, diversified funds with a large-cap orientation, about 60% of your portfolio is in such funds. The actual schemes that you have chosen in these categories have good track record of performance. The only change can be to move from the thematic fund to an all-season diversified fund. You can do so while remaining within the same fund house by choosing Birla Sun life Frontline Equity fund over the MNC fund.

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