Ask Mint Money | In volatile markets, one should continue investing in SIPs

Ask Mint Money | In volatile markets, one should continue investing in SIPs

My monthly salary is 75,000 and my expenses are about 26,000. I have invested about 1 lakh in tax-saving mutual funds (MFs). I have about 12,000 in shares and a few gold exchange-traded funds. How should I start investing through a systematic investment plan (SIP)?

—Neha

You are well-positioned to start investing systematically. First, determine exactly how much you can save per month keeping in mind insurance and emergency fund needs.

The next step is to create a balanced, well-diversified portfolio. You can consider a portfolio that invests 50% in large-cap-oriented funds such as DSP BlackRock Top 100, ICICI Prudential Dynamic and HDFC Top 200. The remaining 50% can be split between multi-cap funds such as HDFC Equity and Quantum Long-term Equity Fund and small- and mid-cap funds such as IDFC Premier Equity Fund and HDFC Midcap Opportunities Fund.

Markets are volatile these days. Should I switch out of my equity investments now and re-enter later? Also should I suspend my SIP till the market recovers?

—Vinod K.

Our advice would be against both such courses of action, for different reasons. For the first question, there are two problems with switching out now and trying to re-enter later. One, switching out would probably mean that you will be exiting at a loss, implying that you bought higher and sold lower—which is the opposite of what one should be doing. Two, it would be difficult to determine when exactly to re-enter the market. Markets often move in spurts and missing a good day or two here and there would make a big difference in the returns.

As regards your SIP, it would not be a good idea to suspend it now. The entire premise of systematic investing is that you invest when the markets are both low and high. At the end of the day, your gains will be more from the investments you make when the markets are relatively lower. So one should definitely continue SIP investing, especially in these times.

I am 22 years old and want to start investing in MF SIPs. I can invest 4,000 in four different MFs for 10-15 years. I favour growth funds. Please advise.

—Prashant Hattikudur

The goal of a good MF portfolio is to ensure that it has the correct risk profile and is sufficiently diversified across good schemes. One can have a good portfolio of just one or two schemes as long as they are the ones that suit your needs.

In your case, for a 4,000 SIP, you can do well with a two-scheme portfolio of Fidelity Equity and IDFC Premier equity fund ( 2,000 each). The first fund has a broad market coverage, while the second focuses on small- and mid-cap funds, which will suit you well.

Srikanth Meenakshi is founder and director, FundsIndia.com

Queries and views at mintmoney@livemint.com

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