Ask Mint Money | First-time investors should look at investing capacity, time frame
Ask Mint Money | First-time investors should look at investing capacity, time frame
I invest in HDFC Top 200, Birla Sun Life Frontline Equity, DSP BlackRock Top 100, ICICI Prudential Dynamic and Sundaram Select Midcap. I will remain invested for at least 15 years. Are these funds good? What about sector-specific funds?
—Prakash
Regarding sector-specific funds, they belong more in a tactical portfolio designed to take advantage of specific economic or industry situations. Investing in the banking sector based on the interest rate scenario would be one such example. Such funds should occupy a small portion of an investor’s portfolio and only in situations where the investor has a particular, well-informed reason to invest in them. Also, it would be important for an investor to define an exit criterion for such investments and stick to it. Long-term portfolios are better built around well-diversified funds that are sector agnostic.
I am 26 years old. I have never invested in mutual funds (MFs). How can one find which fund will be good for 15-20 years and for three-four years?
—Harish
MFs are good investment vehicles for first-time investors. A prudent approach would be to put the fund selection step at the end of the decision-making process. The first thing is to analyze one’s investing capacity and time-frame. Based on these, an overall asset allocation profile should be developed. After this, appropriate funds should be selected in the asset classes identified.
You have mentioned two time-frames—three-four years and 15-20 years. The asset allocation profiles for these two periods would be significantly different. While you can take more risk and hence higher equity exposure in your long-term portfolio, you should be conservative with your short-term portfolio. Equity funds should dominate the more risky portfolio while debt funds and hybrid funds should feature in the less risky portfolio. Once such a plan is in place, selecting the schemes themselves would be a cinch—you can simply consult the Mint 50 list of schemes and pick the ones from the appropriate category of funds that you have identified.
This can easily be managed by individual investors themselves. However, if the initial steps appear overwhelming and you feel the need for a helping hand to get started, you would do well to approach an independent financial advisor, especially for analyzing your financial profile and planning for your goals.
Srikanth Meenakshi is founder and director, FundsIndia.com
Queries and views at mintmoney@livemint.com
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