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Choose debt funds if you are investing only for 1-3 years

The general guidelines for investing in mutual funds are pretty simple. If you are investing for the short term (1 to 3 years), you should invest mostly in debt funds that are relatively safer

I currently invest 4,000 each in SBI Blue Chip, Mirae Asset Emerging Bluechip Fund, HDFC Balanced Fund and 3,000 in Motilal Oswal Multicap 35 Fund every month. I also have two equity-linked savings schemes (ELSS)—Aditya Birla Sun Life Tax Relief 96 ( 4,000) and IDFC Tax Advantage ( 2,000). My time horizon is 10 years for all the funds, except HDFC Balanced Fund, which is for 5 years. I also came to know that the portfolio of the Mirae fund has increased its allocation to large caps. Should I worry about that?

—Anjali Gupta

You are investing in quality funds in an aggressive, long-term portfolio. For medium-term requirement (5 years), you have chosen the right vehicle in the form of a balanced fund (equity-oriented hybrid fund). You are right about the Mirae Asset fund—the fund house has moved it from being a mid-cap fund to a large-and-mid-cap fund. What this means is the allocation to large-cap stocks in the fund will potentially increase over a period of time. This would make the fund slightly less volatile and less risky than it was previously. If you were investing in this fund to provide pure mid-cap exposure to your portfolio, you would need to move to a different fund such as L&T Midcap. That said, the Mirae fund has been a long-time good performer across market cycles. If it is purely performance you are looking for, I would advise you to stay put for a few quarters and see if the fund continues to deliver as per your expectations and then decide on your move.

I have just started investing in mutual funds. I purchased two large-cap funds: SBI Blue Chip and Tata Equity. Now I want to invest in mid- and small-cap funds. Please suggest investments for short and long terms.

—Nikhil Bhugra

The general guidelines for investing in mutual funds are pretty simple. If you are investing for the short term (1 to 3 years), you should invest mostly in debt funds that are relatively safer. If you are investing for the long term (more than 5-7 years), you should invest mostly in equity funds that take on market risk but deliver superior, inflation-beating returns. If the time frame is in-between or uncertain, depending on your risk taking ability, you can invest in a mix of debt and equity funds. And once you choose the category of funds to invest in, choose good funds from a curated list of funds such as the Mint30 list.

Please note that in saying all this, I never mentioned anything about how the markets are doing or what happened in the past few months. For regular investing, those concerns should not play a role at all. As someone who has just started investing in mutual funds, you did the right thing by starting off with large-cap funds that are relatively stable and contain losses well when the markets fall. You can consider adding one or two mid- and small-cap funds to your portfolio. Funds such as L&T mid-cap fund and Franklin India Smaller companies fund will fit the bill nicely. However, please note two things. One, you are investing in an all-equity, aggressive portfolio, which means that you are in it for the long term. You will need to be patient with the market and allow your investments time to grow. Two, you should remember not to react to market volatility—if the market takes a dip and another segment of the market starts doing well, you should avoid the temptation of a lane-change over to the other segment. That is what the fund manager of your current fund is for—to make such decisions about the market and where to invest when. As long as you are investing in good funds, you should let it ride in the market.

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Srikanth Meenakshi is co-founder and chief operating officer, FundsIndia.com.

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