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Ask Mint Money | For three years, buy a balanced or large-cap-oriented fund

Ask Mint Money | For three years, buy a balanced or large-cap-oriented fund
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First Published: Sun, Jul 10 2011. 10 32 PM IST
Updated: Sun, Jul 10 2011. 10 32 PM IST
I retired from a government job last month. I have a lump sum of Rs 2 lakh which I want to invest in mutual funds (MFs). But I am scared that I may lose money. Suggest some good funds. Is there a way to take indirect exposure to MFs?
-Tomoghno Das
While no MF investment is risk-free, there is a wide spectrum of risk between different types of funds. From ultra safe money market funds (liquid funds) to highly risky sectoral funds, there are many options. MFs themselves are an indirect way of investing in the debt or equity markets. There are options like fund of funds that are instruments that invest in other MFs but they come with disadvantages such as high costs.
If you are keen on ensuring that your capital doesn’t get eroded, you can go at best with debt-oriented hybrid funds and capital protection-oriented funds. Good funds in this category are Reliance MIP and HDFC Long Term MIP funds. You can also consider income funds (short to medium term funds) such as Templeton India short-term income fund or UTI Short term income regular fund. The dividend option will potentially make your investment a source of income as well.
I want to start investing in a scheme that can provide me pension at the age of 60 years. I am 36. I want good returns as well as security to my funds. I want to start investing with Rs 1,000 per month.
-Shilpi
It is difficult to choose a fund that you can constantly hold on to for the next two decades and more. You need to pick a fund today and review its performance every three-five years and change it, if need be. Over the long term, you will have a handful of funds and a good overall corpus.
You can start investing Rs 1,000 in HDFC Equity fund. Assuming a return of about 13%, in 24 years, you can hope to have about Rs 20 lakh if you keep investing Rs 1,000 per month.
I am 22 years old and want to invest Rs 1,000 per month through a systematic investment plan (SIP) for three years. I have chosen HDFC Mid Cap Opportunities. Is my choice of fund right?
-Suman Nandi
It’s good to start investing in SIPs at such a young age. However, your choice of scheme could be different. Considering that you are planning to invest only for three years, your choice is a tad too aggressive. It would be better if your first choice is either a balanced fund (a scheme that invests part in the equity markets and part in debt markets), or a large-cap-oriented fund. You can consider HDFC Prudence for the former type and ICICI Prudential Dynamic for the latter. Such funds are less risky and less volatile since they invest in big, stable companies with a track record of performance.
Queries and views at mintmoney@livemint.com
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First Published: Sun, Jul 10 2011. 10 32 PM IST