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Invest in a gold fund for tactical gains or to hedge portfolio against market falls

Gold is either a tactical call to book profits on swift price increase or to hedge long-term portfolios from equity market falls

I am 35 years old and have started investing in these mutual funds: 1,000 in Quant Liquid Plan; 600 in HDFC Gold; 500 each in SBI Magnum Low Duration and Nippon India Japan Equity; 200 in ICICI Prudential US Bluechip Equity and 100 in IDFC Sterling Value. My target is 2 lakh in 1.5 years. Please advise how much should I invest and in which mutual funds?

—Saritha Surendran

With an amount of around 3,000 per month, it will be hard to reach 2 lakh in 1.5 years. You will need to increase the amount—please use any of the online SIP calculators to check.

Most of your funds are unsuitable for a 1.5-year time frame. Since you just started, you also do not have accumulated profits from investments made a long time ago. IDFC Sterling Value is a high-risk fund as it predominantly invests in mid- and small-caps. The Nippon and ICICI funds are international funds. These funds need at least five-seven years of holding period. Gold is either a tactical call to book profits on swift price increase or to hedge long-term portfolios from equity market falls. Stop all fresh investments in these funds.

Other than HDFC Gold, redeem all investments—you will have to pay exit load, but they are risky and can see falls. Keep a close watch on HDFC Gold and if prices start to fall, exit. Reinvest proceeds of funds sold in SBI Magnum Low Duration. Stop fresh investments in Quant Liquid—the fund is small to provide comfort. For fresh investment, you could split the amount between SBI Magnum Low Duration and DSP Liquidity.

I am 32 years old and earn 15 lakh per annum. I want to divert a part of my monthly investments in fixed deposits (FDs) and recurring deposits into debt funds. My goal is better returns and my investment horizon is six-eight months. At present, my returns are 7.5 %. I have shortlisted the following five funds for cumulative monthly investment of 30,000 for six months: Edelweiss Banking and PSU Debt, L&T Triple Ace Bond, IDFC All Seasons Bond, Axis Dynamic Bond and HDFC Money Market. All are direct and growth plans. I invest 40% in equities, 30% in bank deposits and 10% in gold. I hold the balance in cash for emergencies. Please advise.

—Krishna

If your FD is giving 7.5% and you can access this for six-eight month requirement, my suggestion would be to continue with it. The debt funds that suit this six-eight month holding period will likely undershoot this return. The average yield-to-maturity (YTM) of the different debt categories that suit this time frame is 4.9%, with an average portfolio maturity of nine months.

Apart from HDFC Money Market, the other funds are for longer time frames of at least two-three years. They can be volatile in shorter periods. Else, you can consider SBI Magnum Ultra Short Duration, HDFC Money Market and DSP Liquidity (you can do a combination of the liquid fund and either of the other two).

Srikanth Meenakshi is co-founder, PrimeInvestor.in. Queries and views at mintmoney@livemint.com

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