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Thematic funds are better suited for short-term investing

For long-term systematic investments, it is better to go with diversified funds

I want to invest in the banking sector through the systematic investment plan (SIP) route. Which schemes should I choose for the long term?

—Abhinay

Choosing such a thematic fund to invest via an SIP for the long term might not be a good idea. Such funds are better suited for investors who are seeking to take advantage of a short- to medium-term market trend. For example, a climate of rising interest rates favours banking stocks and hence, when such an opportunity arises, an investor would want to invest in banking funds. She may redeem the fund when she senses that the rates have plateaued, or the fund has realized the quantum of profit she was seeking. For long-term systematic investments, it is better to go with diversified funds. If you are particularly optimistic about the sector, you can go with funds that invest significantly in it. The fund manager can then look at the macroeconomic indicators to see how much allocation to this sector is prudent at any given time, entering and exiting as required.

There are quite a few diversified funds that have significant exposure to the banking sector. For example, among large-cap funds, Franklin India Blue Chip and ICICI Prudential Focused Blue Chip both have upwards of 25% of their portfolios in bank stocks, and close to 30% in the financial sector in general. Among broadly diversified funds, HDFC Top 200 and Franklin India Prima Plus have similar high allocations to this sector. You can choose one or two of these funds to get the requisite exposure to the banking sector, without being overly exposed to sector-specific risks.

For the long term, what kind of funds should I invest in? For a year, if I want to make a lump sum investment of 5 lakh, what fund should I look at? Should I consider direct plans? I have investments at the moment in SBI Magnum Global Fund (G) Regular Plan.

—Jai

Investing systematically in a diversified portfolio of equity-oriented mutual funds is the best way to invest for the long term. A portfolio consisting of a large-cap fund, a couple of diversified large and mid-cap funds, and a couple of small- and mid-cap funds would make a good set. The fund that you are holding presently is a good diversified fund, and you can retain it in your long-term portfolio. You can select more funds from Mint’s curated list of mutual funds, Mint50.

For an investment time frame of one year, you should stick to debt funds such as Franklin India Short Term Income Fund, and JP Morgan India Short Term Income Fund.

As far as your question about considering direct plans is concerned, you can do so after you gather some experience with investing and learn how to create and maintain a portfolio. Direct plans are suited for those investors who know how to analyze and choose mutual funds, and for those who can confidently manage their portfolio on their own.

Queries and views at mintmoney@livemint.com

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