Even within the equity asset class, diversify your investments

Even within the equity asset class, diversify your investments

Is this a good time to start systematic investment plans (SIPs) in mutual funds (MFs)? I want to invest for 5-10 years. I have SIPs of 2,000 each in HDFC Top 200 and DSP BlackRock Top 100. Should I start new SIPs or top up existing ones?

—Vimal Jain

As we have often said in this space, no time is a bad time to start investing systematically. This is especially true if the time horizon for your investments is above five years. Over such long periods, the markets will go up and down and your systematic investments will take advantage of the low prices during dips and build value during the highs.

I am 28 years old and I want to invest in equity. I have a saving of 3-4 lakh. Should I make a lump sum investment or start investing systematically in MFs?

—Sneha Khanna

Systematic investments offer the potential of lower cost of investment than lump sum investments. For example, if you spread out your investments into 12 instalments of 30,000 each, it is likely that some of the investment will be made when markets are high and some when markets are low. Thus, on average, your overall cost of investment will be neither too high nor too low. When you make a lump sum one-time investment, you are taking a call on market valuation at a particular time that may or may not be correct.

Ensure that your investments are diversified across market segments within the equity asset class. Please use the Mint50 list of select MFs to choose funds from different market segments to build a well-diversified portfolio.

I am 25 years old and want to invest 20,000 in tax-saving MFs. Please suggest a suitable fund.

—Aneesh Jain

Equity-linked saving schemes (ELSS) are ideal vehicles for saving tax for young investors. These funds have a lock-in period of three years, but is fully allocated to equity providing for maximum growth potential. Given the long time frame of investing that young investors have, they should consider this option for saving tax as the best among the available options under section 80C. Also, this may be the last year for the tax exemption provided to these funds given that the direct taxes code is likely to kick in from April 2012. Fidelity Tax Advantage, HDFC Taxsaver, and Religare Tax Plan are among the best options in this space.

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