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I am 36. For saving purposes, I opened a PPF account with monthly payment of ₹3,000 about two months back. I have also started buying one gram of gold every month from a reputed jeweller in Chennai. Besides, I plan to invest around ₹20,000 per month via SIPs.

I have the following questions: The market is currently at all-time highs. Can I start SIPs now or should I start when the market is down? I am thinking of investing in Franklin high growth companies (Direct plan), but for this, the minimum amount seems to be ₹5,000. Is it ok to invest ₹5,000 in this every month ? I am looking to continue investing for 15 years, so that I can fund the buying of a house then. Kindly guide me.

Kesavan A

It is good that you are spreading your investments across asset classes — debt (PPF), gold and equities (mutual funds). With tax break for initial investment, tax free returns and sovereign guarantee, the PPF is still among the safest instruments for long-term savings, though interest rates on post office savings schemes now fluctuate every three months.

As far as gold goes, if benefiting from the movement in gold prices is your only objective, you need not buy physical gold for the same. Sovereign gold bonds issued by the government from time to time are a good option. Gold ETF (exchanged-traded funds), which you can invest in through a demat account (like shares), is another. Some mutual fund houses offer SIPs in funds that invest in gold ETFs as well.

Coming to equities, ideally, one should make an equity investment when the market is at rock-bottom or exit when it is at a peak. But what is rock-bottom and what is peak is often visible only in hindsight.

SIPs help overcome this disadvantage by helping you put in regular sums of money at different levels of the market. With the fixed sum you put in at regular intervals, you automatically purchase more units of a fund when market is falling and less when the market is soaring. Thus your costs get averaged out.

Hence, anytime is a good time to start SIPs if you have a long-term investment horizon beginning with at least 5-7 years. Of course, these arguments work fine only if the funds you choose have a good track record.

You have stated that you want to invest ₹20,000 through SIPs every month with the objective of funding a home purchase 15 years later. If you invest this sum every month for 15 years and it gives an annual return of 12 per cent over this period, you will end up with a corpus of about ₹1 crore.

This looks good enough to buy a house, given today’s terms. But do keep in mind that the value of money changes with time. To bridge a shortfall, your other investments such as PPF, gold etc. may help. You can also invest more over the years.

As far as the funds go, Franklin High Growth Companies is a good choice. Since you are a beginner to mutual fund investing, take the traditional route rather than go through direct plans.

The minimum investment for SIP in both cases is only ₹500 and not ₹5,000, which is the minimum for lumpsum investment. For ₹20,000 you can have at least five to six funds in your portfolio.

Divide the sum as follows: Invest ₹4,000 each in Aditya Birla Sun Life Frontline Equity, SBI Bluechip and Quantum Long-Term Equity. These funds invest predominantly in less risky large-cap stocks. You can also put ₹2,000 in HDFC Balanced — an equity oriented balanced fund, investing at least 65 per cent in equities and 35 per cent in debt.

By virtue of less allocation to equities, these funds help contain losses better in falling markets. The remaining ₹4,000 can be equally divided as ₹2,000 each in Franklin High Growth Companies and ICICI Pru Value Discovery which are tilted either towards large-cap stocks or towards mid- and small-cap stocks according to market conditions. These are, hence, multi-cap funds.

As per this allocation, 70 per cent of your portfolio is in the moderate risk category (large-cap funds and balanced funds) and the remaining is in slightly higher risk category (multi-cap funds).

Given that you are a first-time investor and have a 15-year time horizon, this allocation seems ideal. However, monitor the funds and replace them if their performance vis-à-vis benchmark and peers slips for a prolonged period.

Send your queries to mf@thehindu.co.in

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