Mutual Funds

Your Fund Portfolio

Aarati Krishnan | Updated on December 16, 2018 Published on December 16, 2018

I am 49 years old and a first-time investor in mutual funds. I have a seven- to 10-year investment horizon with moderate risk appetite. I feel confused about all the options available. How shall I invest ₹12 lakh of my savings in mutual funds? Which funds shall I pick to initiate five monthly SIPs of ₹5,000 each for myself? To encourage the investing habit, please suggest SIPs of ₹10,000 each for my two children (in their early 20s), also with moderate risk. My only goal is to build a nest egg that counters inflation.

Lalitha Raman

As you are a first-time investor in mutual funds, it is best that you test the waters on market-linked investments before jumping right in. Your return experience with the first few funds you buy will decide whether you can stay the course with your investments through market ups and downs.

It will also allow you to gauge your true risk appetite.

It is never a good idea to invest a lump sum in an equity or equity-oriented fund, as any market decline after your investment will immediately decimate your capital. High stock valuations and a clouded stock market outlook make this a bad time to invest a lump sum in equities.

Therefore, we suggest that you invest the capital of ₹12 lakh in conservative hybrid funds. These funds invest over 75 per cent of their portfolio in bonds, with the remaining 25 per cent in stocks, which will provide a kicker to your returns.

We recommend Aditya Birla Sun Life Regular Savings Fund and UTI Regular Savings Fund, both of which stick to top-rated bonds and large-cap stocks.

The returns on such funds can dip when stock markets fall, and rise to double-digits when the markets do well, but they usually do not subject investors to a capital loss.

For your own monthly SIPs of ₹5,000 each, you can consider a combination of large-cap equity funds and aggressive hybrid funds.

Large-cap equity funds tend to suffer lower volatility in their returns than other equity fund categories.

Aggressive hybrid funds, which were earlier known as balanced funds, invest 65 per cent of their portfolio in stocks and the remaining 35 per cent in bonds.

Therefore, even in periods where the stock markets are falling or in a sideways crawl, aggressive hybrid funds do better than pure equity funds.

SIPs ensure that even if the starting point of your mutual fund investments is at a high market level, your subsequent instalments will get averaged out at lower prices and improve your long-term returns.

For your large-cap fund choices, we suggest SIPs in Aditya Birla Sun Life Focused Equity and HDFC Top 100.

In recent times, actively managed funds in the large-cap category have had trouble outperforming the indices.

Therefore, owning index funds which simply mirror the market also makes sense. We recommend a third SIP in either ICICI Prudential Nifty Next 50 Index (an open-end scheme you can buy from the fund house) or Reliance ETF Junior BEES (which you can buy from the stock exchange).

For your hybrid equity fund choices, do consider HDFC Hybrid Equity and ICICI Prudential Equity & Debt.

Your children in their 20s can afford to take more risks with their money than you. Therefore, multi-cap equity funds will be a good bet for their SIPs. We suggest SIPs in Mirae Asset India Equity and Franklin India Focused Equity.

Do note though that these are our fund choices based on the track record as of today.

Your portfolio will require periodic review, and the funds you own may need to be replaced if their performance lags for a sustained period.

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