I have some surplus money. Instead of investing it all in one go, I was thinking of putting it in a monthly income plan (MIP) or debt fund that does not have an exit load and doing a systematic transfer plan (STP) to one of the best star rated funds from the same fund house. Is it possible?
Yes, when a bulk amount becomes available for investment, it would be better to take the patient route of investing it in a systematic way rather than doing it in one go. If you go the systematic way and spread out the investments over a period of time, you reduce the risk associated with market timing. You also get to average your cost of entry into the market which usually works in the favour of the investor.
However, most MIPs and many debt funds have exit loads associated with taking money out of the scheme within a few months of investment. MIPs, especially, have exit loads for up to a year after the date of investment. You would be better off setting up your STP from a liquid fund.
I have been investing Rs 5,000 through a systematic investment plan (SIP) with a lock-in period of one year. One of the funds returned only Rs 800 on an investment of Rs 11,000. I want to redeem the money and invest in another fund. But to escape the exit load, my last instalment has to complete the 12-month cycle. Should I withdraw or wait?
I assume that you have been investing Rs 5,000 in a portfolio of different schemes and one of these schemes was being invested at Rs 1,000 a month over the last 11 months. Also, going by the data in your question, I assume the value of this folio is Rs 11,800 right now. That implies an annualized internal rate of return of around 15%. And that is not bad.
One should invest in equity funds for at least two-three years. Not knowing the fund under consideration, and just going by the time frame of investment and the performance, it would be difficult for me to ask you to exit this investment. So, unless you have other reasons (such as a change in fund manager), you should continue with the SIP.
I want to invest in an SIP for a year. Should I invest in an infrastructure growth fund?
One year is a very short time frame to anticipate good returns. If you invest purely in equity funds, there is a fair chance of erosion of capital. The best you can do in this time frame is to invest in balanced funds. You can consider debt-oriented balanced funds (safer) such as Reliance MIP or UTI MIP, or you can look at equity-oriented balanced funds (riskier) such as HDFC Prudence or DSP BlackRock Balanced.
Investing in infrastructure funds would be a high-risk bet. However, the prevailing market sentiment is in favour of such funds given the cyclical nature of this sector and its under-performance in the recent past. ICICI Prudential Infrastructure fund is the best in this category.
Srikanth Meenakshi is Founder and director, FundsIndia.com
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