I am 25 years old and I earn ₹22,000 per month. I want to invest in equity mutual funds. I am confused about the kind of mutual funds I should choose. If I decide to invest ₹3,000, should I invest in one scheme or three schemes? Please advise.
It’s a great time to begin investing in equity. Starting out early means that even smaller amounts can grow substantially over the years. In equity funds, don’t be influenced by the one-, three- or five-year returns only. Look for other metrics as well like past returns, volatility and so on. Mix different fund types—large-, mid-, multi- and large-and-mid-cap. Also, mix fund styles such as growth-oriented and value-oriented. Don’t sell your fund if returns start to fall; understand why they are falling and know that equity is volatile in the short term and gives good returns only in the long term. To start with, go for funds with moderate risk—hybrid aggressive funds, large-cap index funds, or moderate multi-cap funds. Consider funds such as ICICI Prudential Equity and Debt, Kotak Standard Multicap or Mirae Asset Large Cap. For ₹3,000, one scheme will be enough. Add schemes as your savings increase over time.
I want to invest ₹45,000 per month via systematic investment plans (SIPs). I have a fixed deposit (FD) of ₹5 lakh. What types of schemes shall I choose?
The funds that you should choose for your SIPs will depend significantly on the time frame of your investments (that is, how long you plan to invest in the SIP and when you are likely to need your money back), and your risk tolerance. If, like many investors, you are investing for the purpose of building wealth over the long term, and your risk profile is either unknown or moderate, then you can go with an equity-heavy portfolio—assuming that your time frame is at least five years and you would not need to stop the SIP or take the money out in the interim. If these hold true, then you can consider a portfolio that is 70-80% in equity funds (about ₹32,000) and the remaining in debt funds. You have an FD, which can be part of your debt portfolio. Leave it there to be used for any emergency needs. In a year or so, your mutual fund portfolio will hopefully grow more than your FD investment.
Regarding schemes, you can consider investing ₹8,000 each in ICICI Prudential Nifty Next 50 fund (large-cap, index-driven), Invesco India Growth Opportunities fund (a multi-cap fund) and Kotak Standard Multicap fund (another multi-cap fund). Finally, you should split the remaining ₹8,000 between DSP Midcap fund and Franklin India Smaller Companies fund.
For the debt allocation, you can invest in Kotak Savings fund and L&T Ultra Short Term fund in equal portions.
Srikanth Meenakshi is co-founder, PrimeInvestor.in. Send in your queries and views at firstname.lastname@example.org