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Diversified funds can shuffle positions across sectors

They are best placed to anticipate changes and shuffle positions across sectors that hold potential

I want to invest in an equity-linked savings scheme (ELSS) for tax saving purpose. How do I choose the scheme? And is it better to invest with a lump sum amount or through the systematic investment (SIP) route?

—Chandresh

Choosing a tax-saving ELSS is not any different from choosing a diversified equity mutual fund. You can choose a fund that has done better than its benchmark index with consistent performance across market conditions. This year, Axis Long Term Equity fund and Religare Invesco Tax Plan are good funds to consider for investment.

When it comes to the question of how to go about investing in these schemes, since these are basically equity schemes, the SIP method should be the first choice.

The SIP method averages the costs for investors over multiple instalments of investments and provides some protection against market volatility.

However, if you are investing for this year, your deadline for completing the investment is 31 March, which is barely a month or two away. So, you would be better off making lump sum investment for this year, and starting an SIP in April for taking care of the next financial year.

I have investments in a fast-moving consumer goods (FMCG) fund. I had invested about four years ago and the scheme has given a considerable amount of return. Though I do not have any immediate need for the money, do you think I should book profits and invest that amount elsewhere or continue with my investments?

—Sayantini Ghosh

FMCG funds invest in companies that sell consumer goods. Companies such as ITC Ltd, Britannia Industries Ltd, Colgate-Palmolive (India) Ltd, Bata India Ltd, and so on, feature prominently in their portfolios.

The FMCG sector is, in general, a defensive sector that performs reasonably well across market conditions since these companies deal in consumer staples that people need in any situation. Stocks in this sector, and consequently, the FMCG funds performed very well, especially during the market turbulence of last few years. So, as an investor who (wisely) chose such a fund four years ago, you would have made a handsome profit from your investment. However, as with all sector funds, such high returns might not be sustainable, especially when there is an economic recovery and other cyclical and growth-oriented themes take over.

Diversified funds are best placed to anticipate such changes and shuffle positions across sectors that hold potential. Already, if you look at the performances of the past year, you will see that diversified funds have beaten FMCG funds’ performance handily. So, it would indeed be a good idea for you to book profits, exit and invest in a diversified fund where the fund manager would take the call on which sectors are right to invest at any given time.

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